Sunday, June 13, 2010

June 13, 2010 I Can’t Bear All The Bull


June 13, 2010 I Can’t Bear All The Bull

It is Sunday so that means it’s time work on our game plan for the week. Game plan is a laugh because no one can tell you what this market is doing even after it does it. I had two very experienced people tell me this weekend that they (collectively 75 years in the market) have never seen times like this. Uncertainty and volatility rule.

To reinforce that sentiment all one has to do is look at the title article in this weeks Barron’s. They have their mid year (It can’t be mid year yet can it?) review of their top guru’s opinions. It is not pretty, LONG TERM. I started about a half a page of comment s and realized I was basically just copying the article. I will summarize now and highly recommend you go out and get the article.

Felix Zalauf, a very conservative asset based fund manager out of Germany was probably one of the most pessimistic in the group and says equities are headed for a massive (like 50% adjustment). Short term his and several other are suggesting Bonds and Gold. Long term he is liking solid blue chips.

Bill Gross of PIMCO fame is saying slow, slow, did I mention slow growth. He makes some solid arguments for today’s investor to be globally astute. (This week was a text book example as the market was dominated and influenced by news from Europe, the UK, China, and Japan with little or meaningful news out of the US economy.) PINCO as expected is thinking bonds and Gross spends quite a bit of time pimping good PIMCO bond funds. If I was about 10 years older, I would be seriously looking at some of these bond funds for a 24-48 month window. Gross was also high on GMAC Smartnotes. We have pimped those here as early as October of Last year and I know at least three of the readers had gotten into them and are enjoying 7-9% yields. Gross got into them in January 2010. (You were way ahead of the pack Doyle).

Abbey Cohen, economist, financial analysts, and one of the most influential women in Wall Street, see slow growth for the next 2-3 years with the GDP contracting in 2011 from its current 3% rate. That said, she is very Bullish about the market for the balance of this year with an S & P Target very close to ours here at Salve Lucrum in the1300’s. (Actually the article said 1250-1300.) She and others say the market decline since the end of April has created some very good value opportunities. I won’t give actual equities, but if she were my ad Pfizer I wouldn’t let us steel any oil and energy stocks. (That will tell who is paying attention.)

Oscar Schaeffer of OSS Capital Management (About a billion dollar + fund), he was very optimistic IF china doesn’t choke and the European theater does not get more dramatic. From the conversation he is a true value investor and looks for the shareholder’s yield trifecta of no debt, stock buy backs and dividends. I’d get the article for his actual picks. There is one in his article that I am going to more homework on because it sounds very tempting. We will report back later to see if this dog will hunt.

Fred Hickey, who I had never heard of till this article is author or High Tech Strategies newsletter, a well respected document. He is a bit negative but points out some interesting strategies. I have been looking for a back issue of his news letter to see if its any good.

As you read these Oracle’s of wisdom, one thing becomes quite clear. No one knows what is going to happen. The Only common element I could cipher was GOLD. Almost everyone of them have a significant proportion of their portfolio in gold, gold companies, gold ETFs, or the bullion itself. No one had coinage. Bonds was probably the next most common discussion point. Then equities.

With all of the said, and I assure you I spared you copious more verbiage that ended up in the editors waste pile, how do we make money this week.

Much like last week, the powerful economic news is limited so we will be at the whim of OBN. Other Breaking News. That means keep your eye on your stops, buy on the dips in companies you FIRMLY believe in and have done the homework. If you don’t want to do the homework, listen to these top ten advisors and park you money in some nice bonds or bond funds. A solid 3-4% return over the next 12-24 months is going to be hard to beat without understanding the nuances of what is driving the market, the sector and the stock.

Here is real quick example. Two people have asked me in the last 3 days what is going on with Boeing. We have about 3.5% of the SL Portfolio in BA. We have seen this great stock come down about 13% since its April high of $74.50. I got stopped out of BA the day of the Flash Crash. (The stop was at 68.70. Then I did some stupid panic buying and selling between the 9th and 19th of May proving exactly how stupid I could be before regrouping and getting back in the stock at the 63.00 Level). We eased into our current position not buying huge blocks at a time but only on the dips. We love the forward looking P/E under 14 and the yield of almost 3%. We went back and looked at all the relevant financials and liked what we see. So why is the recent performance so marginal. Boeing sells a lot of planes outside the US. All of the major currencies especially in Europe are under a lot of pressure. In the same time Boeing has come down 13% the Euro is down 22%. Look for the linkage. CAUTION, BA carries a lot of debt which is normal on the company. Further deterioration of the Euro and the Pound will make Boeing product that much more expensive on a global market. International tourist trends are improving meaning Boeing products and service should be in demand. China is driving a lot of that tourism. If China continues to “tap the breaks” on their economy, that will hurt Boeing. Boeing is not undervalued at 63. It is a good value. It was great last week at 60 which is why we BUY ON THE DIPS. We hope that helps.

The point is, you and I can no longer read a USA article about Boeing getting a 2 billion dollar order from Delta Airlines and run out and buy the stock. You and I can not read an article about McDonalds new breakfast line up and go out and buy the stock. The market is no longer is that simple.

Back to how to make money this week. There are no major earnings report to shake up the market. There are two to watch. BBY, Best Buy is a bellwether for retail and electronics. It could move the market. The consensus is 50 cents a share. I am guessing they will disappoint but not by much. Look for 48 cents a share and the market to come down 1% on Tuesday. Wednesday we have FedEx. Their end of year 4th qtr report comes out and a lot of people watch FedEx and UPS as a transport and overall economy tell. The estimate is an aggressive 1.32 a share. Look for them to beat and a fairly positive response from the market. Other than that you have Smuckers, LAZ Boy, and some grocers reporting. YAWN. As I said economically not a BIG week, but about four reports to keep an eye include, Wednesday’s Housing Starts, Producer Price Index, and Industrial Production. As well as Friday’s Consumer Price Index. Here are my guesses for all four.

Housing Starts, will be down. The estimate is 650,000 units. I am thinking worse than that. I am thinking 610,000 but if it breaks less than 600,000 that could be a real significant drag on the market.

PPI, will be lower. There is no evidence of any commodities of import going up and the dollar has been getting stronger making materials cheaper. Look for the PPI to be down about -.7% of a percent BUT it will trigger everyone talking about the D word and that could bring the market down as deflation fears spread.

Industrial Production should be up. The consensus says it will be up 1%. We (I got to have some one to share the blame with.) think it will do a bit better than that. Look for 1.2 or 1.3% upside movement. If it is the .8-1.2 range, the market should not react to that a lone.

CPI, will come down as well. Like the PPI, the consumer price index should be down or flat. The consensus says the number will be down .2%. However, if my theory is right and Uncle Wally is a huge factor in moving the CPI, they have been reducing their discounts a tad which should raise end user pricing. Look for a flat CPI and a (less food and energy) CPI of plus.3%.

Now how do you make money with this news. Remember the linkage. If the number come out and PPI is down, AND CPI is up AND Uncle Wally is a contributing factor to CPI AND all other general merchandise retailers follow Uncle Wally’s price lead, what happens to their margins? ? ? So what happens to their 3rd quarter profits? ? ?

You should have all your ammo by Friday before closing.

Salve Lucrum


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