Wednesday, August 25, 2010

August 25, 2010 The Devil In Disguise


August 25, 2010 The Devil In Disguise

In 1963 Cliff Richard had a hit song called “It’s All In The Game”. I didn’t care for the song much but it seems apropos for today’s blog. “Why?”, you might say, because the last time new home sales were this low, it was 1963. At 274 thousand units, a 12% drop from last month, it took the willy out of the market. Ok, there was no willy in the market, but it took some legs out of the market at about 10:00 EST. Had you the opportunity, the DOW broke through 10,000 creating some apparent buy opportunities as it was almost back to even by 11:00 EST. Henceforth, (I just like using that word.) It’s All in the Game.

What surprised me, as I had Bloomberg on all day in the background in my office, was the lack of attention on the Durable Goods report which also disappointed. The market seemed to take it in stride. While the number was an improvement over the month before it was well below what the oracles of knowledge were expecting. As Cramer mentioned, I believe on Monday, the Durable goods number should spike because of new aircraft order for Boeing. He was right as according to the report, the transportation sector was up over 75%. All other sectors were negative. One more piece of news indicating the recovery, if it remains a recovery, is snail paced.

By the closing today, everyone had forgotten about the bad housing report, the miserable durable goods report, and some lackluster retail reports and turned slightly positive. At about 10:15 am, I had to take a look at the Portfolio and we waded back into a few positions. This was after doing homework last night into the wee hours of the night. When the Dow broke 10,000 this morning we had to pull the trigger on a few trades.

We added a few shares of VLCCF at $17.49, Kightsbridge. I like the financials and I really like the huge sustainable yield.

We added to our position on Chevron at $73.74. We have a lot of Intel long, about 3.1% of the portfolio, but could not resist picking up more via the January 2011 $20.00 call of .87 a contract. (Ok with a call option, you have the right but not the obligation to buy a share of stock at a specified future price and date. In this case we are buying the right to buy a share of INTC Intel next January for $20.00 and it only cost .87 a share to control that right. If INTC is above $20.87 next January, I am “in the money”. If if is below $20.87, I am out of the money.) Currently, INTC closed today at $18.48. We added to our natural Gas ETF, UNG at $6.51. We re-established almost all of our AAPL position at 239.34 a share. We started a NEW POSITION in Amazon at $126.09. More on that later.

We added to our relatively new position in RINO, RINO International Corporation, which, operates as an environmental protection and remediation company in the People's Republic of China. The company engages in designing, manufacturing, installing, and servicing wastewater treatment and flue gas desulphurization equipment primarily for use in the iron and steel industry; and anti-oxidation products and equipment for use in the manufacture of hot rolled steel plate products. Its products include Lamella Inclined Tube Settler Waste Water Treatment System, which comprise industrial water treatment equipment, effluent-condensing equipment sets, solid and liquid abstraction dewatering equipment, and coal gas dust removal and cleaning equipment; and Circulating, Fluidized Bed, Flue Gas Desulphurization System that removes particulate sulphur from flue gas emissions generated by the sintering process in the production of iron and steel; and High Temperature Anti-Oxidation System for hot rolled steel, a set of products and a mechanized system, which reduces oxidation-related output losses in the production of continuous cast hot rolled steel. In addition, it offers contract machining services for third-party industrial enterprises. The company was incorporated in 1984 and is headquartered in Dalian, the People's Republic of China.

It is a dirty business, but when the major steel producers in China want to (and now have to) address fume scrubbing, dust management, sludge treatment, desulphurization, who dey gonna call? RINO.

We added to our MCD position. It is apparent that for the next 12-18 months, people going to Ruth Chris or Morton’s will continue to do so till the firm of ORP (Obama, Reid, and Pelosi) pocket pick them via the new tax burdens. Joe six pack is still enjoying Mickey Ds new coffee and Burger King Whoppers and Taco Bell’s whatever. The big audience in between is not going to high end steak houses or even sizzler, they are migrating towards McDonald’s. This is a good secular bet. (Again, last Friday’s Mad Money did a whole segment on cyclical versus secular industries. Secular industries are the steady eddie of the market place. Think about the stuff you need to survive at the lowest level of the Maslow Hierarchy of needs. Food staples, utilities, drugs, etc). MCD for many people is a staple.

We are inching our way back into Boeing today at $60.72 a share.

We also added to our Nuclear ETF play NLR at $19.44.

We also added to our Israeli Brother in alms via ESLT. It is a defense contractor to whom we outsource. Elbit Systems Ltd. develops, manufactures, and integrates defense electronic and electro-optic systems primarily in Israel, the United States, and Europe. The company involves in military aircraft and helicopter systems; helmet mounted systems; commercial aviation systems and aero structures; unmanned air vehicle systems; naval systems; land vehicle systems; command, control, communications, computer, and intelligence (C4I) systems; electro-optic and countermeasures systems; homeland security systems; electronic warfare (EW) and signal intelligence (SIGINT) systems; and various commercial activities. It also performs upgrade programs for airborne, land, and naval defense platforms, as well as develops and manufactures systems and aero structures for the commercial aviation market. The company markets its systems and products as a prime contractor or subcontractor to various governments and defense contractors. Elbit Systems was founded in 1966 and is based in Haifa, Israel. Elbit Systems Ltd. (NasdaqGS:ESLT) operates independently of Elbit Ltd. as of November 27, 1996.

I liked their financials and their contracts are very sticky. These are not the type of contracts you re-write with new vendors every couple years. We added at the $49.74 level.

And we added to MDR, McDermit our position. We got in originally in June/July as a Nat Gas Nuclear play and then they spun off the Nuclear Division now listed as BWX, Babcock and Wilcox. We got 1 share of BWX for each two shares of MDR we had as well as our original MDR position. Our net is almost even, but we still like the MDR side so we added to it today at 12.74 a share.

Welcome To The Jungle

I don’t know why, but I have never owned Amazon. Even I was surprised to do the homework tonight and discover I have never owned this. I have been an Amazon customer since it was known as, “The World’s Biggest Bookstore”. 1996 I think. I have owned all the Kindles since generation 1 in late 2008. I just ordered the new Kindle.

Today’s WSJ had a great article called “The ABCs of eReading”.

Hopefully you can launch that article, if not please get a hold of it. The metrics are really impressive. Here are some highlights. There are an estimated 11 million owners of eReaders in the US. eBook sales increased 183% the first half of this year. We are now leaving the demographics of the “early adopters”. (That would be me the little old geek meister.) eReaders read 3.3 times as much as a non-eReaders. They buy more books and they buy more print books than non-eReaders.

Anyway read the article, do your homework in AMZN, and you know why we anteed up 125.99 a share. It has spent the last 15 years seeding the lowest cost retail infrastructure around. It has incredible customer loyalty and as a result can affordably roll out new products and news product lines very cheaply. (I swear I only plagiarized a few words there.) Amazon is well positioned to be a third party outsource to companies looking to support cloud computing especially in a transactional secure environment. One of the big bugga boos (an investment term meaning uncertatinty) to keep in mind is the national and international retail tax quagmire. If and when it becomes an issue, AMZN will feel the pain or possible pass it on to customers. Anyway, we be in the Jungle of Amazon. My intent is to creep in below 130, and look for a 200 in 12-18 months. There is no dividend but all the other metrics look sweet. The price based metric look rich, but this is a very popular stock and people are betting on huge but attainable future growth. It has a 3 year average revenue growth of 31% and a 3 year average profit growth of 65%. That explains the forward looking P/E ratio of 51 times earnings.

Apparently the rest of the world read the eReader article today as AMZN was up 1.8%.

And from the White House Archives:

"Now ah Elvis, I'm a bit confused, ah last time you were here you wore a nice velvet cape. That was a much better look for you."

In case you were not familiar, here is the Elvis Pic.

Salve Lucrum


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