Friday, June 10, 2011

9 June 2011 The Best Way To Make Money

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It was darn near normal, the new normal, today. We really don't know what we are going to write once we are back to normal. It was really quite benign today. We got up, let the dogs out, woke up man child, went for a swim, fed the big dogs (Devin does not trust me to feed the small dogs as it is a very discerning science.), let all the dogs out, picked up all the road apples from our "children of the fur", jumped in the shower, went to Bruegger Bagels, and was in the office at decent time.

Now I could digress and tell you about an older strange woman at the bagel shop who mysteriously set up a video machine on one of the tables, draped an electric cord across the floor where everyone could trip over it, tested the video so all the customer could hear it, waited for two other woman to show up and proceeded to show a 22 minute video (I left after 4 minutes.) to prospective customers for the fine cosmetic line she was pimping. About 7 high school students from Santa Margarita Catholic School watched in amazement as they were trying to study for their finals. This lady was oblivious!

We then hit the things to do list at the office and had an extremely productive day. We had a really good meeting in the afternoon. I'd love to tell you about but we have s few people in the industry who read this and I'd have to hunt them down and kill them. Let me just say it sucks to be our competitor.
Like I said, we are at the point where there is little drama at the house and my stories may have to shift to reminiscing about days gone buy.
While I was swimming this morning I thought about when I was in high school and it was my job to clean the pool. It was circa 1970-1971 and one day I was finished cleaning the pool and was always impressed with how the muriatic acid would burn the deck and my shoes and my jeans. I wondered what would happen if I mixed muriatic with chlorine.
Well I did not want my mom see me playing with the chemicals so I went into the pool shed which thankfully had no roof, got out the chemical pouring container, put about a cup of chlorine in the container, looked down into the container and then poured the muriatic acid into the container.
In seconds, a bright yellow cloud of smoke hit me in the face and the next thing I knew, I could not breath. Now I was a smart kid and knew that not breathing was not a good thing. I made my way towards the house and each attempted breath was rewarded with a very painful ripping feeling inside my chest. I got my mom's attention, who was busy watching The Mike Douglas Show and tried to tell her, "Ah Con Brith." She said, quit screwing around what did I want. I said, "Ah Con Brith." Now it was 1971ish and there was no such thing as 911 enhanced so my mother did what she did every time she had an problem, she dialed 714 540 8070, my dad's private line at his desk at US Diver's Company (Now Aqua-Lung, which it was Aqua-Lung Sprio Technique in France before they spent millions of dollars and 34 years branding the American Company as US Diver's Company, then in 1992 decide they liked Aqua-Lung. It Made George Bethel's Day as he was the trademark attorney for Liquid Air North America, parent company to US Divers, I mean Aqua-Lung, but I digress.) Don't ask me how I remembered that number, but that was the number.
So she explained to my dad that I was doing something out by the pool and I could not breath. In his loving way, he told her to put the idiot on the phone. I got on the phone and he asked, "What the hell did you do?" In very small words and very abbreviated sentences gasping for life saving air, I explained to him my science experiment. He quietly listened and said, "You F(^*^$ halfwit, you made mustard gas. That S_*^$ killed about 5 million people in World War One."

While I appreciated the history lesson, I was getting a little woosey and handed the phone to mom. Dad told her to get me to Dr. Law's office quickly. I don't remember much after that because I have blanked out all memories of my mother's driving during those years. I would not say she was a bad driver but dad used to call her Barney Oldfield. (Kids you will have to Google that one because its getting late and we have some stock stuff to go over.)
Hope you enjoyed this little trip down memory lane.

The Best Way To Make Money

The best way to make money is not to loose it in the first place. A lesson we learned again this week.
As you know I have been cutting my teeth on an education in options this year. We have learned a lot. We have learned that you have to pay a lot more attention to option trades than long or short equity trades.
Movement in options have much more to do with volatility that value or growth. We learned that in stocks the trend is your friend and in options the trend is your friend and you enemy and your friend and your enemy all in one hour.
We also learned that you can make gobs of money writing naked calls (I won't bore you but if you care, look it up on the with the investopedia link on this e-mail.) and you can have your heart ripped out with a naked call. You can make a fortune selling puts and you can go bankrupt selling puts. If you have distractions like a full time job, a flood restoration, an 8th grade graduate, and not enough time in the day, option trading is not the thing to do.
This week we got stung with a sizable trade in what is called a short straddle around the CBOE which is the holding company for the Chicago Board of Option Exchanges. The strategy was to buy a put and sell a put and make money of the premium for the sold put. We eventually took a little profit from the bought put when the CBOE was down earlier this week, then did not pay attention to the sold put. A sold put has complete risk as the equity or asset head up. Before I knew it, we had a 494% loss on the sold put. We quickly took our medicine and will be licking our wounds for weeks to come. (Ok in trading terms that mean we cut our losses, took notes on our mistake, and look for more reasonable option trades to make up the loss.)
Cut To The Core
We stopped out of AAPL Apple Inc AGAIN. This is the third time we have entered this stock and hit our trailing stop and are out. A couple more of those and our overall return on the stock will not be positive. I was pretty determined to avoid the stock for a while, then I went into the iCloud Demo and it does look really cool. We are watching for a new entry point as we like the stock long term (18+ Months). Target prices are between 450-500 and the forward looking P/E ratio is below 12. The price to book is right around 5 deriving an inherent value of about 66 dollars a share. With AAPL permeating every corner of our lives (phones, music, movies, pcs, iPads, and the like) a B/B of 5 is not outrageous. The stocks 200 day average is about 324 and there is a major resistance line at 300. If the stock breaks 324 we will be back in.

It's TimeTo Go Shopping
OK that might a bit premature, but Mr. Market has been dragging a bit and it is a little easier to find some value out there. While I won't give the Value versus Growth speech again, now is a good time to be looking for value because even stocks claiming a good growth forecast WILL BE WRONG. Now by that I mean, expect analysts to be too optimistic in growth forecasts.
To night while waiting for man child to return from his 8th grade trip to Disneyland, I had some time to run some stock screens. While we won't have time to do due diligence, we wanted to pass on a couple of names for your to kick the tiers on.
GLW Corning Incorporated manufactures and processes specialty glass and ceramics products worldwide. It operates in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. The Display Technologies segment manufactures glass substrates for active matrix liquid crystal displays (LCDs) that are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions. The Telecommunications segment produces optical fiber and cable, and hardware and equipment products, such as cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and pedestals, splice and test equipment, and other accessories for optical connectivity to the telecommunications industry. This segment also offers optical fiber technology products for various applications, such as premises, fiber-to-the-premises access, metropolitan, long-haul, and submarine networks. The Environmental Technologies segment offers ceramic technologies for emissions and pollution control in mobile and stationary applications, including automotive and diesel substrate, and filter products. The Specialty Materials segment manufactures products that provide approximately 150 material formulations for glass, glass ceramics, and fluoride crystals used in commercial and industrial markets. The Life Sciences segment provides general labware and equipment, as well as tools for cell culture and bioprocess, genomics and proteomics, and high-throughput screening. This segment also develops and produces various technologies, such as the Corning HYPERFlask Cell Culture Vessel for increased cell yields; and other novel surfaces, which include the Corning CellBIND Surface and the Corning Osteo-Assay surface. The company was formerly known as Corning Glass Works and changed its name to Corning Incorporated in April 1989. Corning Incorporated was founded in 1851 and is based in Corning, New York.
This company has been around forever. It's price to book is an incredible 1.5, which is amazing for a brand like corning. It forward looking P/E ratio is about 8, almost 35% below the S&P 500 average, and well below the industry average of 11.1. It's glass substrate products (especially Gorrila Glass) is in huge demand for phones, flat screens, tablets and all of those trends are positive. This has the making of a 24-27 dollar stock currently selling for 18 bucks. If it sound familiar, it is a stock we have owned and pimped in the past. WE DO NOT OWN at the moment, but with a 1.5 B/P, we will be giving it serious consideration.
TGB Taseko Mines Limited engages in the exploration, development, and operation of mineral properties in British Columbia, Canada. The company principally holds interests in the Gibraltar copper-molybdenum mine located north of the City of Williams Lake; the Prosperity gold-copper project situated in the Clinton Mining Division, southwest of the City of Williams Lake; the Harmony gold project located on the Queen Charlotte Islands, also known as Haida Gwaii; and the Aley niobium project situated in the Omineca Mining Division. Taseko Mines Limited was founded in 1966 and is headquartered in Vancouver, Canada.
This is a great valued Canadian copper miner. We will caution that we saw a BBC documentary last weekend (We may have mentioned it here.) about a copper glut. With China cooling, and the global recovery in question, this may be a risky play. The Price to Book is just at or under 2.0. ROA, ROI, and ROE look spectacular. Values are in the 7-9 range and the stock is selling for under 5 after a 5% jump today. Give this one a look, but DO YOUR HOMEWORK. WE DO NOT OWN this one.
Rosetta Stone Inc. provides technology-based language learning solutions worldwide. The company develops, markets, and sells language learning solutions, such as software, online services, and audio practice tools primarily under the Rosetta Stone brand name. It offers self-study language learning solutions in approximately 31 languages. The company's approach, called Dynamic Immersion, eliminates translation and grammar explanation and is designed to leverage the natural language learning ability that children use to learn their native language. It also provides Rosetta Stone TOTALe, an online language learning solution that integrates its online courses with coach-led practice sessions, fun and engaging language games, interaction with native speakers, and live support from customer service agents. In addition, the company offers an online peer-to-peer practice environment called SharedTalk, at, where registered language learners meet for language exchange to practice their foreign language skills. It primarily serves individuals, home school parents, educational institutions, armed forces, government agencies, corporations, and not-for-profit institutions. The company sells its products through direct sales channels, including its call centers, Web sites, institutional sales force, kiosks, and certain retailers, as well as through the sale of CD-ROM's and on line subscriptions. Rosetta Stone Inc. is headquartered in Arlington, Virginia.
Ya know sometimes when a stock get stepped on, beat up, spit on, and trashed, you can shake the dirt off and find a decent company in there. That MIGHT be what has happened to RST. This well known brand (Great product by the way. I learned English using it.) was flying around the 22-24 range until about March when TV and Print Advertising rates started to creep up and their advertising expense (and profits) went down the toilet. The stock has come down, well crashed down, well imploded to about the 12.50 cent level. It has made a bit of a recover to $13.50 making its Price to Book.
Now Hutch is reading this saying wait a minute Cronin you always tell me, "Don't catch a falling knife." And he would be correct in that POV. I think this knife may have fallen so far so hard that it is in the table and needs to be pulled out and brushed off. DO THE HOMEWORK.

HMC Honda Motor Co., Ltd., together with its subsidiaries, engages in the development, manufacture, and distribution of motorcycles, automobiles, and power products primarily in North America, Europe, and Asia. Its motorcycle line consists of business and commuter models, as well as sports models, including trial and moto-cross racing; allterrain vehicles; personal watercrafts; and multi utility vehicles. The company also produces various automobile products, including passenger cars, minivans, multi-wagons, sport utility vehicles, and mini cars; and power products comprising tillers, portable generators, general-purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors, home-use cogeneration units, thin film solar cells home use, and public and industrial uses. In addition, it sells spare parts and provides after sales services are through retail dealers, as well as involves in retail lending, leasing to customers, and other financial services, such as wholesale financing to dealers. The company was founded in 1946 and is based in Tokyo, Japan.

Is it too early to place a bet in Tokyo. This is a household brand and its stock price has been clobbered because of the Earthquake and Tsunami. It crashed from a fair value of 44 to a low of 34 a share. Currently the 37 a share still looks good. At 37 the price to book is 1.22 suggesting a book value of 30 a share. This stock has a 40% run from September of 2010 to March 2011 and it took an act of God to whack this company down to its near book value. We think that this company can and will return to the 40-50 range. It is a question of when. We are looking to get in with a long position at the 37 range and wait and wait and wait. DO YOUR HOME WORK.

Salve Lucrum

Wednesday, June 08, 2011

7 July 2011 At The End Of Several Journeys

At The End Of Several Journeys

We say good bye to one of our contractors today as he finished the touch up and artsy fartsy finish to a few walls once buried in mud. We also began the paperwork to start a voluntary project, to extend our sons bedroom and god knows it needs extending. The end of one of our journeys was the prayer service this morning at Serra Catholic School. While it ran a little long, it was a moving emotional reminder of 9 incredible years of our sons involvement at catholic school. It really didn't hit me till we were on the main floor of the gym laying our hands on his forehead and reading the blessing for the kids. I looked at my wife who had big alligator tears in hers eyes and just assumed one more thing had gone wrong with the project at home. It was then when I realized she was mourning the end of Jack's years at Serra. Even then it hit me. The years of dropping him off at school, running his lunch he had forgot, endless hours of homework, the star watch night at the school, the sleep over on the tall ship Pilgrim and the 9 years flashed before me and it was moving. We had managed to give our son a great education founded in our faith and religion. Job well done.

Tonight our 5 foot 9 son enjoyed himself at the 8th grade graduation dance while mom and I celebrated our success with a great dinner at Hanna's. Jessica took care of us like a sister or mom would take care of her family. Dave came by to say hey, patron extraordinaire. Life is good.
 Life is good.

Mr. Market Opened up in a good mood today.

The Frenchies ala Mr. Jean-Claude Trichet came around to supporting a bond shell game for Brother Greece. The supportive rumors that boosted the market last week, which we complained did not have any details attached turns out to be a roll over of bonds for Greece. It is a classical case of robbing Nikolas to pay Maximus (Peter to Pay Pal). Trichet is encouraging Eurozone members to buy new Greek bonds to pay off the ones that are coming due. That makes about as much sense as a central bank buying its own bonds and financing it by printing more money. Hey wait a minute that what the US had been doing for the last two years with QE I and QE II. There was also good retail number in many parts of Europe. German factory order also made for a nice awakening of Mr. Market today. The Bank of Australia chose to leave interest rates alone last night so that threat was taken off the table. Inflation in the Phiilipines (which had been heating up) cooled off based upon the figures release last night.

All of that made for a good opening and that feel good high lasted until the last hour of trading. The consumer credit number came out rather healthy as we expected, but we can't take a win in that category. We called the number a full billion over the consensus. We said 6 Billion versus 5 billion. The number came in at 6.2 billion, but when you drill down into the report, the largest jump was in student loans. That does nothing for the economy. When you back out the student loan numbers, the consumer credit number is 4.9 billion. I can't believe Mr. Market dissected that before the close of the market today, so the last hour drop must have had something to do with what Bernanke might say in his speech in Atlanta. There were rumors he might start suggesting we tighten capital reserves at member banks which would have the same impact of interest rate increases.

Flotsam and Jetsam

Just some stuff that has been asked or run across my desk of late. Tim from UBS is good about sending out a daily package and today's had a nice piece about sectors to lead us into the back part of the year. Keep an eye on the consumer staples, health care, telecom and utilities. Our suggestion would be look for value over growth. Everything I am reading is that growth estimates for the balance of the year are overestimated.

I tripped over a great brand with a .82 price to book with little debt and decent cash flow. With a 2.78% dividend yield, it might be interesting to look at this for a long term 18-36 month hold and see this 30 dollar stock return to the 40.00 range where to probably belongs. ALL Allstate. Yeah the same company that schlepped me on my home owners insurance. Maybe that is how their cash flow is so decent. Another stock with a sexy price to book is GE, General Electric. The price to book is 1.6. That means with its current selling price of 18ish, it is an 11.00 stock.

Now if you go way back to the first posts we did in 2009, you would see where we called GE an 8 dollar stock selling for 12 dollars. NOTE the price to book. Back then it was 1.6. They have lousy financials and are still way too in debt, but the 3.25% dividend and the GE franchise looks appealing at this level.

In the category of linkage, we were unloading a bunch of groceries into our home and could not help but note all the packaging. By the time we got everything put away, we had more bags of trash than we did of groceries. Then I read an article about all the growing middle classes in emerging markets and said they will need this packaging. Who makes it? I found a decent play I am going to put some more work into, but the name is SEE Sealed Air. Their debt is a little high but their cash flow is pretty. They just acquired a company and they themselves are an attractive takeover target. This is a 26-28 dollar stock selling for 22. DO YOUR HOMEWORK.

Somebody asked me about Natural Gas. You know we had some serious money in PNG and UNG and walked away after loosing more than 8%. This may be a time to take another look. They were specifically asking about a Canadian firm CNQ. Have not done the homework, but at quick glance it looks decent. Its debt and cashflow leave a lot to be desired. We are going to look back into the field again as UNG has enjoyed an 11% bump in the last 30 days. Terry from Australia sent me a not sharing a news piece that US congressmen and senators have unusually high stock returns. How could they when they are so busy Twittering their photos of their favorite private places to everyone.

Salve Lucrum

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Monday, March 21, 2011

21 March 2011 Tuition for Lessons Learned


21 March 2011 Tuition for Lessons Learned

We had another up day today, but before you get all excited, volume was nearly non-existent, so we can’t put in the category of an accumulation day. We are still sittin on ready with our cash to either buy when the buying gets good or to give to our plethora of contractors who are just waiting to add the next item to our every growing punch list.

If you read the blog a week or so ago about lesson’s learned we explained about options and the fact that we had bought them way out too far. Friday we had our day of reckoning. We had 7 call options expire worthless. OUCH! While we won’t tell you the dollar amount, we can tell you the damage to our year to date realized gains. Again, this is money, cash, not still in the account. We had been enjoying an 8.7% year to date gain until Friday. As you know Friday was option expiration day

(Actually it was quadruple witching day when contracts for stock index futures, stock index options, stock options, and single stock futures all expires.) so that means those options that were about to expire expired worthless. The result was a stinger day to the Salve Lucrum Portfolio. Our year to date realized gains dropped from 8.7% to 7.01%. Now a 1.7% drop does not sound too bad, BUT IT AIN’T YOUR MONEY!

Now another thing to keep in mind about quadruple witching day, is we have to be real careful counting Friday as an accumulation day because much of the volume was driven by the option settlements. (I may have lost a few of you there, but if you want a detailed explanation, please drop me a note at Just don’t assume that a good high volume day on a triple or quadruple witching day automatically means an accumulation day by definition.

Pin action in the Salve Lucrum account.

We had entered our RAE order last night, but my buddy Ben know a little about the info we shared from the SEC filings. There was a merger recently and it looks like our upside was taken out of play above 2.00 a share, so we pulled the plugs on all of our limit buy orders at $1.75. Thanks Ben. We did add to what appears to be a good set up for EBIX and SMTC. Again, we would not ordinarily be swimming upstream, but like both of these stocks so we are buying them on the way UP. We are buying cheap insurance with some June PUTs.

The fact volume was so light today indicates the big girls and boys are sitting on the side lines. You can’t really blame them with all the possible and apparent volatility out there. Underneath all the uncertainty is a certainty. We have reset the clock for the US government to stop functioning another 3 weeks. Very quietly, President Obama signed into law a 3 week extension of our debt ceiling so our buddies in capital hill have find the 50 Billion dollar gap between the DEMs and GOPs budget proposals. This last extension did have a 6 Billion dollar hold up in appropriations.

To provide some perspective of that 6 billion dollars, last week we went though the drive through at McDonald’s and we dropped a nickel of our change.

That nickel is more of a percentage of our net worth than the 6 Billion is to the government debt. So you must now guess whether we have a very small net worth or if the government carries a lot of debt. I will give you 14.2 trillion guesses.

That is it for tonight. Here is a question for you. Assuming we post tomorrow, Wednesday will be a note worthy post. Any guesses why? Drop me a note.

Salve Lucrum

Sunday, March 20, 2011

20 March 2011 Ignore That Man Behind The Curtain


20 March 2011 Ignore That Man Behind The Curtain

No I am not talking about Hilary Clinton and the intervention in Libya, I am talking about stock pimping. As you can imagine we are on every kind of e-mail and snail mail list you can find about investing. Almost every week, we get a stock tip from (Don’t bother is pure stock pimping at its worst.) and even though I know these are purely speculative and usually done just to bump a penny stock the author and his friends are already in, they do get my attention from time to time.

This week was no different. It is a gold stock. It wouldn’t be right for me to mention the name of the stock GUNPowder because this newsletter has spent months following the secret little company GUNPowder and that is why I can’t divulge it’s name GUNPowder to you. What I can tell you is the stock is selling for about a buck and the sales job the newsletter is doing is quite impressive.

Well as we read the 16 page newsletter for the stock, we decided to let our little Brindle Caine Terrier down on the floor and ToTo went running to the booth near the stage with all the fire and smoke and Jumbotron pimping the stock. Toto went behind the curtain (Did you know the real ToTo actually broke its leg filming WOO when of the witches guards stepped on its leg, But I digress.) to the SEC filings page and there was the quarterly earnings report for GUNP. Guess what? They have no sales, no profit, it appears to be a holding company for some guy in England. They changed their name in 2008 from Business Service Inc. to GunPowder Gold.

My point is, when the wizard manages to get your attention, don’t forget to let your dog down on the floor and start sniffing around. You may actually find the man behind the curtain and save yourself a lot of frustration and embarrassment.

Barron’s this week.

The cover story was and advertisement for investing in Japan. The cover story by Leslie P. Norton does a great job of explaining why Japan based investments were cheap before the tragedy and even cheaper now (dah!) but should be considered for the mid term to long term investor. (What is the half life of a bad investment?) They discuss 26 or so equities which are “unloved” and with time should recover nicely. You would know about half of them. One ogt my attention Takeda Pharmaceuticals, but it appears it is not traded in the US. (Interactive Broker customers might have a shot at it. DO YOUR HOMEWORK.)

This week, Alan Abelson redeemed himself with us by providing and interesting holistic view of the doings in Japan. The 40,000 foot point of view was helpful in putting together some of the pieces of the currency, sovereign debt issues, equity issues nuclear issues. It was a good read. (As I mentioned, Forsyth’s article concerning the Yen and the G-& intervention was phenomenal. We could see that being case study’s at Wharton and Harvard.)

Santoli, one of my favorites explores the many notions that this correction could be done. He reminds everyone that the bulk of big investors and analysts were looking for a 507% correction and we now have that. We were pontificating about a 5-20% correction under normal circumstances. Those guesses of a 5-7% correction were also under normal conditions. We don’t think this is over YET. Let’s see what happens in Japan and Libya and points east and look for a couple more day’s of positive accumulation before we get back in.

The Week Ahead

There are six key economic data points this week. But before you go back to your Google homepage and look for something more interesting to read, we will not bore you with our take on Existing Home Sales (Down), New Home Sales (Down), Durable Goods Orders (UP), Initial Jobless Claims (Down), GDP Figures (UP), and Consumer Sentiment (Down), because all of these will be back round music to Libya, Japan, Yemen, Bahrain, US Budget politics, and European Sovereign debt issues.

We will expect to see the major market down another 2% this week. Look for the S & P to end around 1,253 (We understand that 1,250 is an important resistance point) and the Dow to finish at 11,620.

Pick of the Day

Now we have been warning you this in NO TIME TO BUY. 75% of the impact on a stocks price is market trend. We are in a correction. However is the market trend is due to a specific cause (Oil prices, Tsunamis, social unrest, and Nuclear calamities) that correction can be your friend if you find a good stock that will benefit because of the bad news. We may have found one.

RAE Systems Inc., together with its subsidiaries, develops and manufactures multi-sensor chemical and radiation detection monitors and networks for oil and gas, hazardous material management, industrial safety, civil defense, and environmental remediation applications. It also offers safety, environmental, and personal protection monitors and equipment; and portable and fixed use safety products to the mining industry. The company's sensor and measurement products include photoionization detectors that are used to measure volatile organic compounds, toxic chemical warfare agents, and toxic industrial chemicals; catalytic bead pellistors, which are used to detect and measure combustible gas; and non-dispersive infrared sensors that are used to measure carbon dioxide and hydrocarbons. These products also consist of electro-chemical sensors, which are used to measure oxygen and toxic gases, such as carbon monoxide and hydrogen sulfide; solid polymer electrode sensors that are used to measure oxygen; and solid-state scintillation detectors, which are used in neutron and gamma radiation. The company's integrated wireless products consist of AreaRAE, a wireless-enabled gas detector, which provides transmission of monitoring information to a base station located two miles away from the detectors; and MeshGuard that has the ability to transmit radio data in and around metal structures that are difficult for clear radio transmission. Its radiation products include Gamma RAE II R, NeutronRAE II, AreaRAE Gamma, AreaRAE Steel Gama, and DoseRAE that are used in handheld instruments to detect low levels of radiation on a real-time basis, as well as dosimeters, which are used in nuclear power plants to protect personnel from radiation exposure. RAE Systems Inc. sells its products through its sales force, and a network of sales representatives and distributors worldwide. The company was founded in 1991 and is headquartered in San Jose, California.

This is a small cap stock with little debt and little income. It appears to be below the radar, but its accumulation rating is sliding upwards. It sells for under $2.00 a share. From reading the SEC filings, there is some information implying aht a revocable trust may be attempting to take the company private. Beyond that the company looks well positioned to drive some sales and apparent profit in the Japanese market. Hysteria may push products outside the Japanese market.

IBD has some positive ratings and as we mentioned it looks as though some players MIGHT be taking positions in the stock. We are getting in Long below 1.75 a share. We will look for a double by fall and then reevaluate. If the “going private” action carries, we could loose about 75% of our value. This is a speculative play. BE CAREFUL.

Sometimes a picture does not tell the whole story. In a quote earlier today, President Obama said and I quote, “Qaddafi has lost his legitimacy as a leader.”

Salve Lucrum

Saturday, March 19, 2011

10 March 2011 When Did That Happen?


10 March 2011 When Did That Happen?

It is Saturday so you know what that means. The new Barron’s is here. I usually wait in the driveway for my weekly does of capitalistic propaganda. Today it was different. I had a higher calling. My son Jack, had a weight lifting camp for which he was signing up. Now last night we had him at Basketball practice. This morning, while I proudly watched him work his way through jerk presses and bench presses and eventually out to the field and doing football training, it hit me. My son is a Jock. OMG. When did that happen?

We did eventually make it to the house. (I asked him not to sweat on my leather seats.) And there was my Barron’s magazine. We have only skimmed it as we watched the news a bit to find out France was the first to invade Libya. Did I just use “invade”, “France”, and “first” in the same sentence? It felt kinda weird watching the news and not seeing The US leading an assault. As a world leader, it seemed a bit strange.

If the markets were open, we feel it would be very volatile and the price of oil would be shooting up. We are going to watch this close and try and make some observations you can make money on this week. We will try and get that published by Sunday evening.

Two things we do want to share with you today. First is an update on the CRONASTICS CHART.

This is our homegrown chart using the IBD accumulation/distribution ratings for the DOW and the Nasdaq and how many companies on the NYSE are above their 200 day average. We boil the numbers and ratings down and created this chart. What you know is the continued fall for the week, which should be expected in light of the week we had. However, note the very subtle shift in the last two data points. The degree of the shift is beginning to taper just a bit. Visually and mathematically the drop seems to have slowed. We played with the numbers and it is very difficult to hot zero. We are thinking that when the chart shifts to an upward direction, we should be seeing more accumulations days than distribution days. We will wait and see.

The other item we felt compelled to share with you is a great article in Barron’s. If you have an interest or are just curious about foreign currency, Randall W. Forsyth does an amazing job of explaining the mechanics and impact of the G-7 interventions to stabilize the Japanese Yen. He does so in a way that is easy to understand, informative about global money flow, and how these things impact sovereign capital markets. This is a keeper, not just for this crisis, but to understand how and why central banks buy and sell other countries debt and keep or sell other countries currency. This is worth the price of admission this week.

We will wrap up our review of Barron’s and see where the oil plays might be before Monday morning.

Salve Lucrum.

Friday, March 18, 2011

18 March 2011 What A Difference A Day Makes

BAGAKOAA 18 March 2011 What A Difference A Day Makes

We did not race home this morning to check the market as we mentioned there is not much there to check. We did get in on the LULU puts and this morning moved a few of or friends into that position as well. LULU was down over a point today so we are seeing the downward movement we were expecting. We did break through that $75.50 mark, but we closed above it ($75.59). IF and it’s a big IF, we can break through the $69.50 range this could fall to a 35.00 price.

It was kind of a good day in a whacky way. It started out really hot because a mad man promised to stop shooting his fellow countrymen. Ok let’s believe him. Then we had some voices of reason concerning the nuclear situation in Japan. Then we had the G-7 (I always remember it as FIG JUK US In Canada France, Italy, Germany, Japan, the UK, the US, and Canada) step in and sell off some Yen to create a little support safeguard for their currency. Then some major global banking brain trusts identified that of the Japanese prefectures destroyed it only equates to about 5% of their total GDP. So the market was strong today and volume was 40% over the average so this is definitely an accumulation day. In the back round, we have the noise of a yet to be addressed debt extension that the parliament of whores in Washington has to address. We also have sovereign debt issues in Europe lingering and the word deflation has disappeared from our vernacular and been replace with the I word, Inflation.

We are glad to see our first accumulating day in 14 trading days. We want to get back in the game, but we ain’t there yet. Give me about 4 or 5 more accumulation days in the next 10 trading sessions and we will be sittin’ on ready.

Lesson Learned

There I was in 1996-1997 and everywhere I looked I was bombarded by e-mails and pop ups from this new company called NFLX Netflix. Mail order movies. How corny was that. They ended up doing an IPO in May 2002 and raised some money. By that time I was not only an avid user of the service but was giving gift certificates to friends, family and employees. In the fall of 2002, we bought our fist position in Netflix and told several of my Stock Buddies (Long before the blog.) We all got in the $5-7 dollar range. In October 2003, I read an interesting article about Comcast and Cox offering a new service call onDemand. My gosh the very service that was causing all the angst for Blockbusters was now going to get clobbered by onDemand service.

I ran down the streets yelling “SELL, SELL, SELL.” After all how many times in your life do you get a triple.

All but one of my buddies sold and took their profit. The one who did not was not insightful they just forgot they had it. One who did sell it to this day reminds me that the stock went from the 22 a share to 35 a share then they did a 2 for 1 split. By early 2005, the stock was at a split adjusted 10 dollars a share. That was when my one buddy who kept the stock was really happy he had shown a 30% gain, not realizing that if they had put some stops in they could have made 320% gain in the stock.

There were several lessons on this stock. The first would be, don’t buy into a stock just because they are promoting the product or you are seeing the product everywhere. Had I done due diligence, I might not have gotten in as early as I did, In looking at historical earnings records and SEC filings we would have found a $7.10 entrance point on positive pricing and volume (that would be accumulation and funds were beginning to buy the stock in early 2003) on or around February 24, 2003. So we would have lost a little on the front end.

The real lesson learned was the sell transaction. I sold for two reasons. GREED and FEAR. GREED, because we had nailed almost 400% on the stock. FEAR, because another product was going to suck away the profits of the company. Had we been watching the stock, reading the quarterlies, reading the SEC filings and watching the charts, we would have stayed with the stock through the thick and thin (We will admit it would have been iffy in August 2006 and November 2008.), we would have had the stock up to and including the market melt down because the bad economy actually had a positive impact on the rentals of movies. Most of that business left Blockbusters and went the way of Netflix. In August 2010, Netflix announced plans to start streaming movies into our living rooms via several gaming platforms. The very reason we got out of the stock in 2005, was now a reason to look at the stock again.

If we had followed our newly found rules for investing, we would have gotten out of the stock at a very obvious resistant line of 206 as it was broken on March 1, 2011. Our gains would have been 1,471% over 7 years. That is about 210% a year. Lesson Learned.

Pick Of The Day

First off my anti POTD from yesterday while performing ok today in the market has some new light shed on it. There was a cover story in today’s IBD about the inventory shortage at LULU. While this is a good problem to have, the company is being forced to fly product in to satisfy current demand. This will impact Q 2 earnings negatively, so the PUTs seem like a good bet, but our trade was based upon longer term drop in demand because of the economic concerns of 5 dollar gas on disposable earnings. Tile will tell, but if you played the PUT strategy with us, watch it like you do a stock. Your stops might be a bit more leinient than a typical equity stop. Perhaps you look at getting out at a 20-30% drop.

So of all the stocks on our watch list, if we had a gun to our head and were told we had to buy one, CAT Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It operates through three lines of businesses: Machinery, Engines, and Financial Products. The Machinery business offers construction, mining, and forestry machinery, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. It also manufactures diesel-electric locomotives; and manufactures and services rail-related products and logistics services for other companies. The Engines business provides diesel, heavy fuel, and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, marine, petroleum, construction, industrial, agricultural, and other applications. It offers industrial turbines and turbine-related services for oil and gas, and power generation applications. This business also remanufactures Caterpillar engines, machines, and engine components; and offers remanufacturing services for other companies. The Financial Products business provides retail and wholesale financing alternatives for Caterpillar machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans and various forms of insurance to customers and dealers. It also offers financing for vehicles, power generation facilities, and marine vessels. The company markets its products directly, as well as through its distribution centers, dealers, and distributors. It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois, is looking like a decent pick.

Again we are in a market correction and even though we have had two up days in average volume ranges, CAT does seem like a nice position to consider. In the last 10 trading sessions we see 4 accumulation days and 3 distribution days. That is in a downward market, so the CAT is beating the trend, a good sign. In a news brief today (but we know we don’t buy because of new releases) their dealer network is indicating a 59% increase in revenue for the 3 months ending February. CAT has a lot of debt, but it goes with the category. The most negative things we could find were the challenge of integrating their three latest acquisitions into the CAT family (German engine maker MWM, locomotive manufacturer EMD, and mining equipment OEM Bucyrus). Please read the SEC filings as they are very informative and interesting. You know the big yellow cat like you never have before.

The play would be to look for one more day of accumulation with a new distribution day and catch and entry point below $106 a share. Put you stop in at 97.50 and look for $127 by mid June. Keep a special eye and stops in place for the April 26th earnings call. They should beat and if Owens (Chair and CEO) does not throw out any scary forward looking comments, you could see the 127 a lot sooner. DO YOUR HOMEWORK.

Salve Lucrum

Thursday, March 17, 2011

17 March 2011 Accumulation Distribution


17 March 2011 Accumulation Distribution

A couple of people did ask, so first off, the wine we had last night was a 2007 Roger Sabon Châteauneuf-du-Pape Cuvée Prestige. It was deep dark and delicious. This is an old world wine so it does not have the big over the top tannic structure of an old world wine. It was soft and layered, but was till a smooth chocolaty, earthy, smokey, and rich glass of wine. It’s about $45-50 retail and it is worth a lost in your collection. It will be better by next year and should pour well into the 2020s.

Today we had a little upwards adjustment in our market correction. This is not unusual and just as you see a sell off after three days of gains, there might have been some perceived buying opportunities today so people (And from the looks of the volume, some fund managers.) found some possible bargains.

In describing the action today with a good friend, we got into the discussion about accumulation and distribution. On almost any given day in the market there are only 5 categories of market movements, and it is really important to identify them. Why? BECAUSE 75% OF A STOCKS PRICE IS DETERMINED BY THE MARKET OR SEGMENT TREND. The trend is your friend. Write that down and memorize it. Here are the 5 type of days in the market. We will look at the Dow because everybody talks about the DOW.

There is the up day with heavy volume. Take a day like September 17,2010. Look at the chart below.

You can see the big spike circled. The horizontal red line on the bottom is the 50 day average volume in shares traded. When you see the colume go 25% above the volume average you can almost guarantee it is the big boys and girls buying or selling. When the market goes up on big volume like September 17, It is called an accumulation day.

The next scenario is the market is up on light or below average volume. In the chart below you see December 21 and 22, 2010.

You can see both days are recovering from a couple of sell off days. So the market was up but there was no “conviction”. Apparently none of the big boys wanted to join in the pre-Holiday festivities so my guess would be it was retail traders like me cleaning up their portfolio before years end.

The next set up would be little change in the market number up or down on average volume. We have couple to point out on the chart below.

September 29, 2010 as it was down less them .2% and November 19, 2010 as it was up less than .2%. These are the epitome of sideways days.

The next scenario is the market being down on light or below average volume. December 27, 2010 (circled) below, had virtually no volume on a slightly down day. That is typical of the week between Christmas and New Years. This year was especially bad because of the nasty snow storm.

Then to round out our scenarios, we have the days we all dread a big down day on heavy volume. This is called a distribution day. Below, fresh in our memories is the 16th of March 2010.

That is a picture perfect distribution day. I have marked 10 distribution days in the last 18 trading days. (The little hash marks on the Bottom of the page.) That is not a good sign, but you can see what the market DID after about 5 distribution days (March the 5th) the market was only down about 2% from its high. We called the rally over and got out on the 7th of March which helped keep about 4% of the correction currently in place.

So when will it be over? I don’t know, but if you watch the numbers and the volume you can count the accumulations days and distributions and have a good feel for when you should brush off your watch list and get back in the game.

ANTI Pick of the DAY

Ok we are going to go out on a limb here and pick a real LULU. Yeah Lululemon is a really hot stock. Lululemon Athletica Inc. engages in the design, manufacture, and distribution of athletic apparel and accessories for women, men, and female youth in Canada, the United States, and Australia. The company's apparel products include fitness pants, shorts, tops, and jackets for healthy lifestyle activities, such as yoga, running, and general fitness. Its fitness-related accessories comprise an array of items, such as bags, socks, underwear, yoga mats, instructional yoga DVDs, and water bottles. The company sells its products through its retail stores; independent franchises; and a network of wholesale accounts that includes yoga studios, health clubs, and fitness centers, as well as directly through e-commerce. As of January 31, 2010, it operated 124 company-owned and franchise stores under the lululemon athletica and ivivva athletica brand names. Lululemon Athletica Inc. was founded in 1998 and is based in Vancouver, Canada.

Now this company has been making women look great in their form fitting exercise clothes and have been handsomely rewarded. However as we think gas is going to 4-6 dollars a gallon, and this line of apparel is truly discretionary with a capital D. They beat estimates yesterday but took a hit as forward looking statements warned about slower earning growth. Today was a 4% distribution day and if I was hedge fund or mutual fund manager and heard the weak forward looking comment coupled with the price of gas and other commodities, I’sd be taken some profit.

This has short or put written all over it, BUT do your homework. Shorting and putting is risky business. Make sure our facts are correct. The stock closed at 76 and change today. There is a significant reisitance line at about $74.50. This could easily correct to $65 a share. If you have some insomnia, here is some math to help you fall asleep. Don’t read this while you are driving.

Their current P/E ratio is 41.06. The market is closer to 14. So let’s do that math. Based upon forecasted earnings next year of $1.86 for the year and a market P/E of 14, the stock could sell down to 26 dollars a share. Ok, let’s not get crazy, after all their Price to Book value is 16.86 making the core value of the company $4.52 cents a share. Whoa! We are going the wrong way. Well let’s look at the target price average. Uh ho! That is 73.56 a share mmmmm. That is why we have our ANTI Pick Of The Day.

The market is in a correction, we have a CEO that is telling us things won’t be quite as nice as in the past. We have an overvalued stock no matter how you look at it. The best way to play this might be to buy some $75 April PUTs as close to $3.50 a contract as you can. Let’s see what happens.

Salve Lucrum

Wednesday, March 16, 2011

16 March 2011 Let The Sunshine In


16 March 2011 Let The Sunshine In

Ok, who knows who Gunter Oettinger is? He is a European Commissioner of Energy for the European Commission. Why is he important? He spouted some very inaccurate comments about the state of affairs in Japan with regards to their nuclear plants. It hit our market at about 7:00 am PST and we saw the market crunch from about 60 points (Dow) to 200 points down. It turns out his comments were for a prepared speech and not based on actually conversations with ANYONE in Japan. Now we are not pretending that all is well in reactors 1-4 at the Fukushima Daiichi Plant in Japan, but the comments implied pending Armageddon. Let’s just say it got everyone’s attention.

It was very interesting to run from our hotel to our home this morning in time for the market opening only to realize we had NOTHING to do. We checked some remaining PUTs and checked on our London Exchange account (Had to dump one there. As it had dropped below our 8% rule.) That was it.

Throughout the day we had no good reason to check on the account. We did take some time at lunch to adjust our 401K account. People if you have tax deferred accounts, don’t forget about them. Give them a little love and attention. We were 100% equities and we moved to 50% equities and 50% cash as of today. Last night we started a new book called “Reminiscences of a Stock Operator Illustrated”. It is about a guy named Jesse Livermoore who was a stock trader in the late 1890s. We will tell you how it goes, but so far it is amazing how some things never change.

At times like this it's fun to see what the other corners of the world are saying about the markets. Thank you, Terry for sending in some heads up from his FA in Australia. They too have gobs of volatility and when the information Terry sent me their market is about 4% off their highs (Now worse than that.) The overall message was not as fatalistic as we have seen on other markets. The portfolio referenced is very heavy dividend stock (You would love it Hutch.), but is due for correction and should be watched closely.

Let The Sunshine In

We have played with the white hot solar stocks in the past only to get sun burned. My fair skinned Celtic back round actually allows me to get moon burned, but I digress. Any who, we would not buy any equities at this moment in time, but thought it worthy to mention a few Solar Stocks if you are interested. We are not endorsing any of these, but with the events in Japan, investors will chase the need for greed into the solar market so you will see some upside in the likes of FSLR First Solar, Inc. designs, manufactures, and sells solar electric power modules using a proprietary thin film semiconductor technology. It also designs, constructs, and sells photovoltaic (PV) solar power systems. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. Its integrated solar power systems activities include the project development; engineering, procurement, and construction services; operating and maintenance services; and project finance. First Solar, Inc. sells its products to solar project developers, system integrators, and operators of renewable energy projects in the United States, Germany, France, and internationally. The company was formerly known as First Solar Holdings, Inc. and changed its name to First Solar, Inc. in 2006. First Solar was founded in 1999 and is headquartered in Tempe, Arizona.

SOLR GT Solar International, Inc. engages in the design and manufacture of manufacturing equipment; and provision of services for the production of photovoltaic (PV), wafer, cell and module, and polysilicon products worldwide. It offers chemical vapor deposition reactors and related equipment that are used to produce polysilicon to chemical companies and power generation companies. The company also provides directional solidification systems (DSS) furnaces and related equipment that cast multicrystalline ingots, which are used to make photovoltaic wafers and solar cells; and turnkey integration services, using third party wafer, cell, and module production equipment. In addition, it offers technology and engineering services for the commissioning, start-up, and optimization of its polysilicon equipment and technology; engineering packages and process licenses for the production and purification of trichlorosilane and silane; and hydrochlorination technology, which lowers power consumption of polysilicon production. Further, the company provides replacement parts and consumables used in its DSS furnaces and other PV equipment; and a range of services in connection with the sale of equipment, including facility design, equipment installation and integration, technical training, and manufacturing process optimization. It sells its products to polysilicon producers; and solar wafer, cell, and module manufacturers through its direct sales force, as well as through sales representatives. GT Solar International was founded in 1994 and is headquartered in Merrimack, New Hampshire.

TSL Trina Solar Limited, through its subsidiaries, designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. The company offers monocrystalline PV modules ranging from 165 watts to 240 watts in power output; and multicrystalline PV modules ranging from 215 watts to 240 watts in power output for use in residential, commercial, industrial, and other solar power generation systems. It also involves in the design and production of various PV modules, such as colored modules for architectural applications and larger sized modules for utility grid applications based on customers' and end-users' specifications. Trina Solar Limited sells and markets its products primarily to distributors, wholesalers, power plant developers and operators, and PV system integrators. The company was founded in 1997 and is based in Changzhou, the People's Republic of China.

JKS Jinko Solar Co., Ltd. operates as a solar energy company which manufactures and markets mono-crystalline and multi-crystalline silicon wafers. Its products are used for manufacturing photovoltaic solar cells and panels. The company was founded in 2006 and is based in Shangrao, China.

LDK LDK Solar Co., Ltd., through its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic products; and development of power plant projects. It offers multicrystalline and monocrystalline wafers to the manufacturers of solar cells and modules. The company also provides wafer processing services to monocrystalline and multicrystalline solar cell and module manufacturers; and sells silicon materials, which include ingots and polysilicon scraps, and other chemicals to produce polysilicon and solar wafers. In addition, it involves in the development of solar projects in Europe and China; and provision of engineering, procurement, and construction services in China. The company sells solar modules to developers, distributors, and system integrators. It has operations in the Asia Pacific, Europe, and North America. The company was founded in 2005 and is headquartered in Xinyu city, the People's Republic of China. LDK Solar Co., Ltd. operates as a subsidiary of LDK New Energy Holding Limited.

DQ Daqo New Energy Corp., through its subsidiaries, engages in the manufacture and sale of poly silicon for solar panel makers, photovoltaic module, and electrical equipment in China. It processes poly silicon into ingots, wafers, cells, and modules for solar power solutions. The company was formerly known as Mega Stand International Limited and changed its name to Daqo New Energy Corp. in August 2009. Daqo New Energy was incorporated in 2007 and is based in Wanzhou, China.

With that, we bid a good night. Had a great meal and nice bottle of wine with the nicest lady in the world at Hanna’s tonight.

Salve Lucrum

Tuesday, March 15, 2011

15 March 2011 Greed and Fear and Lessons Learned


15 March 2011 Greed and Fear and Lessons Learned

Now that most of our sell trades cleared our portfolio all we see are the bonds, the options and a couple of defensive positions JJG, DBA, GLD, SLV, and CANGX. We did take some tidy profits this morning on some PUT options on AAPL and AMZN. We checked out of WCRX after hitting our 8% down rule, but it remains on the watch list. We ante’d up for more EBIX after feeling comfortable that the down swing yesterday after a great earnings call was just a weird anomaly. (Perhaps a reverse short squeeze. NOW I swear I made that term up as I could not explain what happened to EBIX yesterday, but low and behold in March 2000 one of Cramer’s good buddies Herb Greenberg actually used the word to describe what happened to a stock called MSTR MicroStrategies.

I have to “steal” this for you as it is in the subscription side of The"No natural cushion: A week or so ago, when many of the MicroStrategys (MSTR) of the world were racing skyward in one of those "mothers of short squeezes," I mentioned that the trouble with short squeezes is that when the shorts are squeezed out, there are no natural buyers to cushion the fall.

A few readers weren't clear on the concept, so I tried to explain how shorting works: that short-sellers borrow shares and sell them and, if all goes their way, the stock falls and they buy the shares at a lower price and return the stock to the owner. That buying by the shorts provides the cushion when the stock heads south.

A squeeze, on the other hand, pulls the shorts out before the fall, as the owners of the stock demand that the borrowed shares be returned, forcing the shorts to buy stock and get out of their positions.

Still don't get it? Take a look at MicroStrategy yesterday, where the short-sellers had been squeezed out by the time yesterday's bombshell was announced: That the company had been booking too much revenue upfront. (You know the shorts were gone -- or mostly gone -- because short interest in early February, just before the stock made its final push upward, had fallen to 1.29 million shares from 3 million a month earlier. Short interest presumably dropped even more as the stock more than doubled since then.)

With no shorts left to buy, or to cushion that fall, the only surprise was that the stock tumbled only 62%, as sellers tripped over one another trying to be first out a very narrow door. (Add the heavily margined nature of many of these "yeehaw-squeeeeeeezzzzzeeeee-them-shorts!!!!!!!!!!!" message-board posters, as Cramer has been pointing out so well, and you get an all-out implosion. "The stocks are down 50% before you can get the first trade off," chortles one short-seller.)

Anecdotal evidence suggests shorts had abandoned such companies as Rambus (RMBS_), which dropped 19% yesterday after an item here raised some red flags; Lernout & Hauspie (LHSP), the voice-recognition software company known for its "momentum" press releases, which dropped 12%; and Terayon (TERN), a cable-modem maker, which was off 9%.” Please consider a subscription to the as there is tremendous value in their alerts and it is a great resource for investment education. Really!"

So we are sitting at 35.5% bonds with an average yield of 7.2%. (One is a tax exempt muni so the yield is a teeny tiny north of there when you consider tax adjustments.) Then we are 24.5% defensive ETFs and ETNs as mentioned. There is 4.5% in 31 call and put option positions. (Most of these are WAY down. Learn more in lessons learned.) Then we have 3.2% in equities. That leaves about 29.6% in cash.

Fear and Greed

There are only two things that drive a market in any direction. Any guesses? Earnings, earnings growth, low debt, cash, dividends, share buy backs, positive news? Nope. The ONLY thing that drives the market in any direction is Fear and Greed. “How cynical”, you might say. You can make money in the market without being greedy. You can just be well read and opportunistic and do quite well. You can be cautious and protect your capital.

Opportunity is just greed dressed up in a Tom Ford Tuxedo and caution is just fear clothed in an Elise Saab Mermaid Gown.

 (Whoa! Flash back to way too much time watching the red carpet arrivals at the Oscars.) But let’s face it, fear and greed is what make the market move.

If inflation were permanently pegged at 2% and all the nations of the world came out with the God, Allah, Buddha, FILL IN THE BLANK deity Bond fund guaranteeing 5% return forever, with in minutes someone would be looking for a way to hedge or leverage that fund with credit default swaps or ETFs in order to get 5.0001%. It is human nature.

Today we saw the face of fear. It may be justified it may not we do not know. It does not matter. It would be a heck of a lot scarier if the Nikkei index dropped 17% and there was no earthquake, Tsunami, or radiation scare. No one knows what tomorrow will bring and that means there is fear.

Lessons Learned

So many, where do I start. We mentioned that carnage in our option holdings. In the last year we have spent a decent sum of money learning the options market. We still have a long way to go. My goal is to retire some day and be able to manage and protect my capital and provide enough income to eat the gourmet dog food and not the generic dog food. I have often found that analogy annoying for if you investigate it, Dinty Moore stew is cheaper than most dog foods, but I digress.

Here is a piece of my long and expensive learning curve. When you buy call options (The right but not the obligation to buy that stock at a pre-determined price on a pre-determined date.), don’t buy them out too far. We bought a bunch of VXX options in November-February for a January 2012 options expiration and it has gone down and stayed there. The reason is because no one cares and it is so far out (Still 9 months) that there is NO pin action on the option so every day we sign on and see this great big ugly RED number staring me in the face showing a minus 89% return. We assumed that when the third largest economy in the world got whacked by an earthquake, Tsunami, and nuclear accident, that the needle would have moved a bit for the VXX options. Well, the March 19 options are going crazy up and the April options have quite a bit of pin action, but the January 2012 options have gone from a minus 89% to a minus 77%. Lesson Learned.

Salve Lucrum

Monday, March 14, 2011

14 March 2011 Resisting the After Shocks


14 March 2011 Resisting the After Shocks

As we mentioned the little bit of gain on Friday was weak on very low volume. No one knows the long term impact of the tragedy in Japan on an already debt weary nation or for that matter how it impacts all countries they trade with. That uncertainty along with continued civil unrest in Bahrain and Libya as well as European sovereign debt issues pushed the market down on light but heavier than Friday’s volume. The Dow and S & P broke fairly important resistance levels of 12,000 and 1,300 respectively. Now you can read all about the nasty numbers everywhere, but we wanted to let you where the brain trusts think the next resistance will be. This is stolen from Charles Schwab Daily Watch and little bit of tea leave reading by yours truly. (Come on wasn’t anybody impressed with that Cronastics Chart last night?) Ok 11,850 ish is where we could see the Dow bounce off from. That would be just hair above the Jan 28 low. Look for (hope for) resistance at 1,279 in the S & P. If they fall below that, hang on to your hat’s Boys and Girls.

The Salve Lucrum Portfolio (Or what is left of it)

As we said we sold out of almost everything last week. Of our few remaining positions, we came very close to our 8% stop rule on WCRX, but it came back a bit at the end of the day. GLD did nothing today. SMTC was up 2% today. Remember we kept our PUT positions on AAPL and AMZN and both of those are getting ripe for the picking. The AMZN put has a nice 32% gain at the close today. SLV is holding a nice 2% gain since we got back in.

One of our stars EBIX was supposed to hit 33 cents a share and we said we would be disappointed with anything south of 40 cents. The hit 42 cents a share BUT took a 3% loss today. We will look at the transcripts for the earnings call and see why. Everything we read tonight was GLOWING. Perplexing, but we are thinking we will pick up some more at the 27.50 level in pre trading hours. Again we should not normally buy in this obvious correction, but this is a great stock with great fundamentals and a pretty chart.

While It May Seem A Lot Like Chasing Ambulances

As an investor or trader (There is a difference you now.) We have to protect our investments by avoiding stocks during a crisis, but look with in those incidents for opportunities. There is a Chinese sysmbol below which shows two women under one roof.

It is the sign for challenge and it is the sign for opportunity. During the SARS epidemic we did quite well with a few pharmaceuticals that were chasing the disease. We also made money of the companies who made those masks that everyone was wearing. During the swine flu epidemic we made a nice margin of the three pharms who had cornered the market on the flu shot vaccines. After Katrina we made some money on a couple of lumber concerns and the industrial supply company W.W, Grainger. There is no shame in identifying opportunities and making a profits so long as you remember where those gains came from and make a heartfelt gesture to be as benevolent as you can. With that pre-amble over, be on the look out for opportunities in the days and weeks that come. Already there are names popping up, The Journal, Cramer, and IBD are beginning to throw some ideas at us.

KUB Kubota Corporation, together with its subsidiaries, engages in the manufacture of machinery, and other industrial and consumer products primarily in Japan. The company's Farm & Industrial Machinery segment offers farm equipment, including tractors, combine harvesters, rice transplanters, power tillers, and reaper binders for agricultural use; small engines; and construction machinery, such as mini-excavators and wheel loaders for various industrial uses.

Their fundamentals suck and they are not highly rated by anyone, but they are local boys in town to start rebuilding the country of Japan. Think of them as the Japanese Caterpillar.

CAT Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. Yes CAT will probably see business increase as a result of the tragedy in Japan as they rebuild but also as the world mines more iron ore to make steel to fit the needs of the reconstruction.

BTU Peabody Energy Corporation, through its subsidiaries, engages in the exploration, mining, and production of coal worldwide. It owns interests in 28 coal operations located in the United States and Australia, as well as owns joint venture interests in a Venezuelan mine. Yes coal will be a dual play as nuclear get frowned upon and the demand for metallurgical coal is needed for the steel demand. BTU is a good play.

If you don’t have the means to explore individual stocks, how about an ETF or two. While the crisis in Japan will cause some short term food source issues, that will be on top of food and grain crises already occurring. Remember the fire in Russia, we have fully replanted and recovered from that. Last year torrential rains in China devastated many crops. All of this has a compounding effect sure to drive agricultural prices up as well as nitrogen based fertilizers. JJG and DBA are each taking a brief down turn because of the short term lack of demand of grains and commodities by Japan. Look for these to reverse once again to the upside within a few weeks. The US Grains Council has already mentioned several of the Japanese prefectures (Think states or counties) that will suffer damage to feed mills and livestock operations, not to mention their inability to get grains to and from various ports. Another broader play in the agriculture field of ETFs is MOO which tracks the lime of POT, MON, and DE. Even in this correction mode in the market, picking up a few of these might help round out a portfolio.

My son had a basketball try out tonight so we are running late so we will leave you with photo from last night's trailer trash get together. The four families impacted by the December flood get together almost every Sunday night to cry in our beer (or in our case usually some really decent wine. Last night we enjoyed a 2008 Rombeaur Zinfandel.) and compare contractor notes. If you look real close you can see the porta potty in the back round.

Salve Lucrum