Tuesday, January 12, 2010

BAGAKOAA; Jan 12, 2010. All the lower fruit. . . .


Jan 12, 2010. All the lower fruit. . . .

Well Alcoa set the tone Monday night. They missed. If you recall the estimate was 6 cents a share, the whisper number was 7 cents a share and they came in at a penny. Much better than the 28 cent loss from last year but still disappointing. Everyone on Bloomberg was talking about it before the bell. Despite that, the market did close up Tuesday, but as Art Cashin at UBS (Thanks Tim and Mark) pointed out the 46 points on the DOW was due to three stocks CVX, UTX, and CAT.

So here I am sitting with less cash than I would like, because I know there are bargains out there. But are there? The PE ratios of companies have really taken off. There are no real cheap stocks. OK there are a few, RIG comes to mind, but it is starting feel a lot like late 2006. We have been seduced by the 40 % gains we have seen since March. In talking to several people in the business, we are SLOWLY seeing retail investors who made the move from money markets, to debt (bonds, bond funds, bond etfs), to equities. At first this sounds like a good thing, however my concern is that once the pros see the money making that shift, they may take it as a signal that almost everyone is in the pool and they will start to get out of the equities that are up 30% or more.

I got out of the market in late 06. This is partly because I am brilliant and because we had other plans for the money. Home Improvements and over inflated PE ratios made me look like a genius. Yes I did miss the peak, but remember never try and time the market and when people are falling through your second story deck, you should fix it. Needless to say, it is hard to find true value in companies. I am guessing that the S & P average earnings, now at high 15s could get to 17. That gives us about 5 more % on the upside. Play it accordingly. Don’t be a afraid to take some profits at 25% or better.

Keep in mind, you can take 3 hits at 8% loss when you take your profits at 25% or better. Do not expect another 40% on top of what you have seen in the last 9 months. Think about what you would make in a nice safe cash account. Perhaps a point. I know of a Gold Trading company where if you open an account ($10,000) minimum and promise to trade, you can get 2.85% on you residual cash. That is one of the best deals I’ve seen without tying up money in a Bond. If you want Bonds, have I got a guy for you. Let me know.

So when you compare the market in the next few months, 5% starts looking good. So how do we get there this week. I had a nice profit on GOOG, but there is some concern about the employee stock option issued last March (perfectly timed) and it might dilute shareholders equity by almost 2 billion dollars. I hope to contact Investor’s Relations today. Regardless, that would make a probable 1000-1200 dollar stock worth 900-1100. (Great article in Monday’s WSJ that has people checking their GOOG value). The main rub was they re-priced the options and the timing is awkward. If I don’t get a satisfactory response, I will take some nice profits. Too bad since I just bought the new Nexus. (Cool so far).

Because I have no life, I get to read a lot of great blogs and newsletters regarding investing. Again thanks to Tim T at UBS, I got one on Monday I wish I could share with you. It is put together by Jeremy Zirin, CFA, strategist, David Lefkowitz, CFA, strategist, Joseph Anthony Sawe, strategist at UBS. It is called the Dividend Ruler List. It does a fabulous job of sector analysis and seeking high yield (Cramer might call them accidental yield) equities. If you know someone at UBS ask them to get you on the list it is a great pub. I can’t tell you much more or Tim won’t get me anymore UBS Golf Balls. I can get you in touch with him, but you’ll need the big check book.

The trade deficit increased today and exceeded estimates. Ok now pay attention as this gets tricky. An increasing deficit means we are importing more than we are exporting. Now exports went up as well, just not as fast and imports. This is good news. We are consuming more indicating the economy is improving and we are shipping more overseas. (Mostly due to a cheap dollar which is correcting.) Making a dent in our exports were autos (Think Ford), farm products (Soy Beans), and industrial machinery (Think CAT, John Deere, computers and semi conductors). Oil was imported heavily as a dollar amount but about flat volume wise. Makes sense since oil is up about 11 % in the last month.

Our next big day this week should be Thursday as you have Intel reporting and JP Morgan reporting. I’ll get you whisper numbers on these if I find them. Also you have the Fed’s Beige Book coming out. I have been reading the beige book for more than 20 years now. It is one of the few government publications that is relatively unbiased, accurate and easy to read. It is now downloadable in a pdf so I can get it on my Kindle. Anybody in business should get this and you see what is actually going on in the economy. I’ll give a brief summary on Friday.

Salve Lucrum


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