15 September 2010 “I’ll gladly pay you Tuesday for a Hamburger today.”
Ok who said it? I’m waiting. Yes it was Wimpy of Popeye fame. Guess who else said it. Steve Ballmer of Microsoft Fame. He said it Monday as MSFT is considering floating a huge bond issue to raise cash to pay shareholder pressured dividends and stock buy backs. One would ask why would a company create long term debt when they are sitting on about 34 Billion in cash. I was one who asked that at first. Then I realized that they can lock in a coupon rate (What they would pay bond holders) of about 5.85% knowing that interest rates of the next 15-30 years (typical life of the bonds under scrutiny) will creep higher and they can invest that money at as good or better return elsewhere. There is also the realization that much, in fact most of that cash is offshore. No I am not talking about a seedy bank in Cayman, but in their legitimate corporate entities in about 11 other countries. When Mr. Ballmer wants to bring that cash into the US, he will incur US income tax on those monies despite the fact he paid the prevailing tax rate in the original domicile (fancy legal accounting word for place) that Mr. Softy earned the money. It is much cheaper to easily borrow (Again, they have 33 billion to back up the notes and they have a AAA credit rating) a few billion bucks than it is to repatriate those dollars and pay additional US taxes. Interesting.
The Other Five I owe You.
But before I give you those five economic data point guesses for the balance of the week, we missed the guess on the industrial production report which I expected to beat estimates. It actually was a miss, but the market took it in stride, I think because of the little bit of retail euphoria we are seeing.
Tomorrow we see the Producer Price Index which is expected to rise just a bit from .2% to .3%. This report will encompass August and you’d think these prices would encompass the grain price inflation as a result of the Russian Fires and resulting export bans, a slight escalation in fuel costs, and encouraging demand for industrial metals in August (There was 9% increase in copper alone). I am thinking that it will be a .4% increase which might get people to stop talking about deflation which ironically will rally the market.
Tomorrow we will also see the weekly new jobless claims report. Last week we almost nailed the jobless claim number anticipating the nice number we saw kicking off a bit of a rally (That is twice I used the word rally in one post if you are counting.) Again this week, I am going contrarian and going against the grain, who say a slight negative adjustment. Look for a drop of another 25,000 initial jobless claims putting the report number at 426,000, way below any estimate. (double checked the math this time)
Then we have the Philly Fed Survey which is a business sentiments survey of industrial companies much like the Empire State Survey report. It is a indexed figure and the consensus range is all over the place from -5 points to +5 points. I won’t argue the average consensus at 3.8 but then again I don’t see the value of doing all the homework to argue the number as we don’t see it being terrible relevant. (Which begs the questions why am I writing about it at 10:30 at night?)
Friday will see the CPI or the Consumer Price Index. Again it is poised to be flat with last month at .3%. Again, we don’t think they are considering all the categories of commodities that have experienced increases over the last 4 weeks. Look for .4%, which might worry the market a bit. A .4% translates into a 4.8% inflation rate (have you noticed gold hitting highs everyday?) That will take deflationary worries out of play but put hyper inflation worries back in the vernacular of all the talking heads on Friday. It could also change the banter of the Fed and they might actually ease off the easing off. Remember the Fed’s inflationary goal is about 2%. This week we just saw a jump in British inflation to 3.1%, concerning the Bank of England whose target is also 2%.
Lastly, we have Consumer Sentiment. Last month we saw the UOM index slide just a hair from 69.6 to 68.9. The brain trust out there is guessing a recovery to 70. I agree and maybe a skosh (A finance term meaning a little bit) more.
So many things and it is late.
First off my apologies to those of you who get this blog directly from blogger as it comes from JJ Phineaus. That header is a gmail account so I do not, or did not check my gmail account for responses. I have fixed that and should now know when you have sent me a note.
Fortunately most of the comments were positive support although a couple did ask about how much time it takes to do the homework described. To answer the basic question, yes I can do that type of homework on each stock in under an hour. I say that because I can screen and eliminate an equity in just a couple of minutes. Once I have NOT eliminated them, I usually put it in my Watch Closely stock watch list in Schwab or VectorVest. At night or on the weekends, I do the complete homework which occasionally, but not often takes an hour to make the decision to pull the trigger. Once we pull the trigger the weekly homework in each stock is under one hour, Unless there is something of note going on.
An example would be McDermitt, which is an oil gas energy play we discovered post the BP/RIG tragedy. We were looking for an energy play with oil and gas exposure. I liked MDR for those reasons and some unique exposure to the nuclear energy market. After doing all the big bad homework, we bought in slowly over a couple of weeks. I did not replicate that homework with each buy, but checked the news and the SEC website to see if anything was happening. (FinViz.com does a great job of news amalgamation). In early July, the rumor of the Nuclear Division spin off hit the market. (Marketwatch, Bloomberg, and Businesswire all broke the news over the 4th of July weekend). We went in and did all the homework and tried (I am not smart enough to pull it off but gave it a college try) to figure out what kind of value could be stripped out for the nuclear division. That took a lot of time. In the end, I took the spin off deal and we now own MDR and BWC, Babcock and Wilcox. Both are performing well.
It’s a creepy little bug
We are doing some homework on the next boogie man stock. We had quite a bit of luck in 08-09 with PFE, MRK, RHHBY, and TFI because of SARS and swine flu. There is a little antibiotic bug popping up in third world nations that is resistant to all known antibodies. They go by the acronyms of VRE and MRSA’s and we have more reading to do, but it appears as though the possible candidates are the usual suspects. Merck has financed a couple of articles in the New England Journal of Medicine as has Pfizer and J & J. We are reading some more articles so see the complete hit parade, but here are a couple of articles to consider while we look closer. This would be a speculative long term (24-36 month) play with lots of volatility.
I must acknowledge “Hutch”, a regular reader, for bringing this news sniggbitt to my attention. Great way to play the linkage game. We could be way ahead of the crowd on this one.
Grabbin the Ring
We mentioned last night we were going to take a little jingle off the table. We shaved a bit off of MDR, IBM, AAPL, MCD, and KO. I really didn’t want to because of the mini rally we are seeing (That’s three), but needed some cash and the numbers looked good. They say, never be ashamed to take a profit, but this just does not feel right.
Did I say Rally?
Ok I am going to go out on a limb here and officially call this shift in momentum a rally. From looking at the S & P 500 and we had some interesting market shifts from the end of August to the 3rd of September. Then people started believing the big bad curse of September. Then about the 9th, it was a momentumless shift, but a shift none the same, a rally. I am going to take a guess and say this will not be a mini rally but at least as long as the one we saw from February to May. This could get us through the holidays and depending upon the election well into Q 1 2011.
They did the right thing, I hope
Ok can anybody name two Republican Senators who are not running for reelction? That would be Ohios George Voinovich and George LeMieux from Florida. They broke the grid lock in the Senate that will allow a vote on the most recent small business stimulus proposed by the Obama Administration. This is the one we mentioned here last week allowing a company to take a tax credit for a capital improvement all in the year it is expensed.
My read on it is it will be good for businesses, how ever it is a slippery slope as the infrastructure portion of the bill is RUMORED to include a bullet train from Las Vegas to Anaheim, (perhaps called the Reid Express) and a new Highway from Marin County to Napa Valley. (perhaps the Pelosi Parkway).
At the end of the day, it was good to see a republican do what appears to be a good thing even though it cost them no political sweat (assuming they don’t have to run for any office when they get home.) This bill still must make its way through the labyrinth of the Senate.
From the White House Communications Photo Gallery:
On a video hook up with the Space Shuttle Crew Atlantis, The President pressed mute and said to his staff:
"Hey, let's mess with them and tell then we don't have enough money to get them home!"