August 4 2010 DANGER WILL ROBINSON

BAGAKOAA;

August 4, 2010 DANGER WILL ROBINSON

Voice actor Dick Tufeld would say that almost every episode of the 60s TV show "Lost In Space". I only use it as today’s header to make sure everybody has their stops in place. We are playing with a little of the house money, but Friday is the big bad scary jobs number and that could be what Vegas calls (Shift Change) where they change all the dealers because the pit boss does not like the inertia of the tables. We got a little taste of what MIGHT be announced on Friday with todays ADP employment number. It was stronger than expected, BUT (regular readers know the acronym, but for our newbies, Behold the Underlying Truth), ADP have been known to give the market a head jerk and make eventual bad news even worse. The market, heck could you call today’s volume a market? A market is where a bunch of people buy stuff, and there were not a bunch of people today. The market today held on tightly to the good news from ADP and some good news out of the service sector. Like I said, hang on to these gains and put your stops in place.


We were trading today. We did not mean to, but we did. An inadvertent stop got triggered on WPRT Westport Innovations Inc. (Westport) is engaged in the research, development and marketing of high performance, low-emission engines and fuel injection systems that utilize alternative gaseous fuels, such as natural gas, propane or hydrogen. The Company develops technology and products that enable light, medium and heavy-duty diesel engines to run primarily on compressed natural gas (CNG) or liquefied natural gas (LNG), giving users an alternative fuel to diesel. The Company works with strategic partners, which include diesel engine and truck original equipment manufactures (OEMs), to develop, manufacture and distribute its engines, and it sells to a diverse group of truck and bus OEMs worldwide. During the fiscal year ended March 31, 2010 (fiscal 2010), the Company sold its remaining interest in Clean Energy Fuels Corporation (CEFC). In July 2010, Westport Innovations Inc. acquired 100% interest in OMVL SpA and its 51% share of Juniper Engines Inc. (Pladgerized from my buddy Chuckie Schwab).

Anyway, we stopped out at 5.5% gain and I can’t figure out how the stop got placed. In a nutshell they make stinky buses. We got in in June then accidently stopped out a few days later, (see Salve Lucrum post from June 23). After more homework tonight I will ease back into the equity as they seem to be the best play for LNG Trucks and Buses. The fundies are not all that pretty, and I would have to consider this a speculative play. They have never shown a profit but reasonably manage their debt. They are well positioned to be a major benefactor of the new probable energy bill to be passed later this year.


In researching (again) I tripped over an interesting play called RINO Intertnational Corporation is engaged in the business of designing, manufacturing, installing and servicing wastewater treatment and flue gas desulphurization equipment for use in China's iron and steel industry, and anti-oxidation products and equipment designed for use in the manufacture of hot rolled steel plate products. The Company has three principal products and product lines: the Lamella Inclined Tube Settler Waste Water Treatment System, the Circulating, Fluidized Bed, Flue Gas Desulphurization System and the High Temperature Anti-Oxidation System for Hot Rolled Steel. The Company's sole business activities are acting as a holding company of its direct and indirect subsidiaries, Innomind Group Limited, RINO Investment (Dalian) Co., Ltd. (RINO Investment), Dalian RINO Heavy Industries Co., Ltd. (RINO Heavy Industries) and Dalian Innomind Environment Engineering Co., Ltd. (Dalian Innomind). (Thanks again Chuck)


They have no debt, their ROE is an amazing 46.1%, their net margin is 5 times better than the industry average, 3 year revenue growth is 161.8% compared to an industry average of 8%, their multiple is a cheap 5.5 and the book value is 1.8.


(We placed limit orders for RINO at 13.50, looking for 20 by years end, and we put limit orders in at 17 for WPRT, with an out at 22 by years end.  HINT, before you buy know where you want to get in and where you want to get out and when.)


I am blessed to have several readers who are in the investment industry and as such I get a lot of reading material. Last night, after I posted, I got a hold of a newsletter from Dorsey, Wright and Associates (Thanks Tim), If you have access to it the article was called “From the Money Managers: Consumer Confidence”. It addressed the simple but important question, "What actually happens to the stock market when consumer sentiment is poor?" It shares a lot of fascinating data from the UOM Consumer Sentiment Index and how it compares to the market over, well like forever (1978). The results were interesting.


What they discovered was that in the 5 years after consumer sentiment was at it lowest, market returns were at their highest. And vice versa. When you stop and think about it, it makes sense. How many people got out of the last peak in the market in a timely basis? I know I did, but I actually got out about 11 months too early and quite honestly I needed the cash. Ok, other than me, who got out on a timely basis. Many if not most rode it down until they just couldn’t take it any more and then got out those sexy mutual funds and stocks and put it in nice safe caring comfortable cash. Too late. Then we wallowed in our self pity and had icky consumer sentiment and still do even though the bottom of the market appears to have been March 2009, 16 months ago. Who is really back in the market. Ok I am, many of our readers are, but we are the exception. Just in today’s WSJ there was an article about the return of savings in the US. We were close to or above 7% savings rate in 2009, the highest since World War II. The we started spending the first quarter of this year. Now we are saving again and the rate is back in the mid 6%’s.


Really what this great article said was, to be successful you have to buck the tide of consumer sentiment. When people are feeling good and making money, take some profits and downsize your positions. When the drunks are falling in the street hung over, grab their wallets and buy your way back into the market. It takes discipline and nerves of steel, but it keeps you from doing what so many “investors” do, buy high and sell low.


Perhaps a Birhtday Gift to Me!


If you go back in this blog to mid March and search for the word lithium, you would see I was hunting down some stocks in that industry. There was not much there. We picked up a little ABAT a Chinese company called Advanced Battery tech and it did not perform well so we got out. Same was said about HPJ, a Hong Kong Lith battery maker. I really wanted a pure play on the commodity as it is getting gobbled up by a bunch a folk. There was none until last week. Global X Fund announced the first lithium exchange-traded fund LIT, in shares of the largest and most liquid lithium battery producing and mining and refining companies. The fund is set up to be half battery companies and half mining companies. Back in March we did our homework and found the three top plays in lith mining was SQM from Chile, FMC Corp and Rockwood Holdings from the United States. Guess what? They are the top three mining holdings in LIT. This is a brand new very speculative fund. Only use the Vegas money on this interesting play.

And yet another candid moment with The President:

Pelosi to The President, "We can get this bill passed as long as no one reads it.  That is why it is 2,307 pages long."

Salve Lucrum