Friday, September 24, 2010

23 September 2010 Dr. VIC meets Martha


23 September 2010 Dr. VIC meets Martha

Thank all of you who sent in good wishes for Devin’s speedy recovery. We may want to slow down that recovery just a bit as I have found an interesting benefit to the situation. She was extremely uncomfortable early this morning and got some help from Dr. Vic (Vicodin). As we were driving on an errand on which she insisted in joining me, she apparently did not like a comment I made and used the word “Snotily”. Somewhat along the lines of, “You don’t have to say it so “snotily”. When your spouse starts inventing words it is a good time to become an opportunist. Realizing she was not thinking clearly, I quickly convinced her that they had closed the local Target store and that she was much better at landscaping, cleaning the pool, housekeeping, pet grooming and a few other activities that we occasion hire out, and that it was OK if I watch each episode of Jeaopardy before we play against each other. I call that making the best of a bad situation. Seriously, thank you all for the kind thoughts.

(I did some homework on calculating the G Force of a 30 mph crash. According to the Volvo website and my guess at the weight of the vehicles and Devin’s body weight, and assuming some of the roll of the vehicles, she took about a 5-9 G jerk. Which means she had the moving weight of between 665 pounds and 1170 pounds. Ouch!)

In the market today

As you know we closed below the mystical magical 1130 mark in the S & P. Most of that downward momentum was driven by the surprisingly negative initial jobless claims. I know I got that wrong too! The S & P closed at 1124. This is not good and we would suggest that you all keep a close eye on your stock stops. We have some nice gains so far this month and we want to keep them. AAPL has been up 17 of the last 19 sessions, GLD is tracking gold that is going to touch 1300 as soon as tomorrow. Our bonds holdings are still looking strong. (more on that later tonight If I have the time.) KO, currently our largest non bond holding came down just a hair but up 11.45% since we got in. We have a 20% upside to AAPL, 16% upside on Amazon, 18% up on McDermitt, 12% up on Knightsbridge, even several of my wayward calls are starting to get hot. Let’s be sure we keep these profits or at lease a part of them.

Questions from the readers.

Someone sent me a note today asking if it is time to sell their hot bonds that have been doing so well.

First off I am no expert in bonds and would highly recommend the best place to get relevant accurate info would be with a financial advisor with fixed income experience. There are dozens of bond strategies and terminology that would make some of our readers go looking for the next funny photo and caption. One great book that I have read and highly recommend and look forward to utilizing even more as my situation provokes me into being more conservative with my investments, is a book called "Bonds: The Unbeaten Path to Secure Investment Growth" by Bloomberg press. (Hildy Richelson and Stan Richelson, are the authors.)

They actually lay out some interesting pragmatic strategies for moving to an all bond portfolio with impressive returns. For a true nuts and bolts read about this class of investments, buy a copy of this book.

Now to the question, is it time to sell, sell, sell? (Someone is watching way too much Cramer. Love Love Love it.) Yes and no. Answering this question about bonds is difficult as each bond is different and each person’s situation is different. Now I will give my fluffy monkey in the casino answer for two categories of people. First, let’s look at a younger single person with gobs (a financial term for more than 20), of earning years ahead of them. Then let’s look at a couple at or near their retirement and for all intense purpose ending their earning years.

Let’s make some assumptions about the younger person. They are employed well vested in their 401 K, they have a solid medical/disability insurance program and are not overly encumbered by debt. Let’s assume they have 50,000 in their 401 K and earn 20% in matching funds from their employer and they are doing their best to max out their 401 K every year. As of march 31st 2010, they have had 75% of their 401 K money in bond focused mutual funds. The other 25 % is split in equity mutual funds and cash funds. In their non 401 K investments totaling 30,000, let’s say they are 50% bonds or bonds funds and 50 % stocks. And let’s assume they have enough interest and skill to do the necessary homework to select value based equities with attributes towards accretive shareholders equity. (Good free cash flow used to pay down or eliminate long term debt, issue dividends in line with or exceeding the 10 year treasury yield, and executing stock buy backs.)

Should they sell sell sell their bond and bond funds? Yes I would suggest shifting more away from Bonds until about 20% is based in bonds. Bonds have performed exceedingly well over the last 2 years. There are many tells there is shift from bonds and cash onto equities. It is a low volume subtle shift, but a shift none the less. So evaluate taking some profits and start looking for quality value or solid growth stocks. Consider bumping up the equity holdings to 40% of the portfolio and 401 K. The other 20% might be in Gold/Silver and cash leaning more heavy towards the metals. Assuming the equities are balanced in a diversified portfolio with no more than 20% in any one of the 5 following sectors Energy, Finance, Industrial-Aerospace, Tech-Tel, and Speculative (yes if you are paying attention that is Cramer BOATS acronym for a balanced portfolio) it should keep you happy and making money for the next 1-2 years.

Here are the assumptions for the retired couple. Net worth is about 500,000 with 50% in real estate and 50 % in a selection of IRAs containing mutual funds broken out like this 30% Bonds, 30% cash funds, and 40% equity funds. They have adequate medical coverage either through cobra arrangements, carry over medical programs from former employers or Medicare with a decent secondary. They are for all intent purposes debt free.

My suggestion would be to get about 60-70% into bond based mutual funds or actual bonds shooting for a yield of at least two times the 10 year treasury. Under this scenario, unless they are willing to invest a lot of time and attention to managing an equity heavy portfolio they would be better off seeking a good yield on a blend of corporate or tax exempt bonds. So in this scenario we would buy buy buy. One bond fund I was recently asked to kick the tires on was Vanguard Long-Term Investment-Grade ticker VWESX. This is a long term high quality corporate Bond MF. March to March ending 2010 showed almost a 20% gain. As we all know billions pour out of equities and into bonds. VWESX was a primary beneficiary. It could loose a lot of this steam over the next 12 months if the shift being recognized is real. Its expenses are in tact, and some its prime holdings are Goldman Sachs, GE, JPMorgan, Astrozeneca, all long term and having yields of 5.5 to 7%. It is managed well. We would not look for another 20% this year but 10 is very doable with a little regression next year. Remember we are expecting mass exodus out of bonds and back into blue chip equities 4th quarter 2010 and Q 1 2011.

This is only my humble opinion on the subject of market timing for bond investing. I hope it helps. PLEASE pick up a copy of the Richeleson Book if you are serious about bonds. It is a good primer and more.

Martha and the chain gang.

Someone today, who is long in MSO, Martha Stewart Living Omnimedia is wondering why this stock never took off especially after she was released from prison. OK the person asking this question is someone I respect and admire and if I didn’t I might say, “Listen to the question as it is read a loud to you. “Why didn’t the stock take off after the former CEO was released from Prison?” Ok, let's look beyond the fact the former CEO is a felon and is prohibited from ever serving on any publically held BOD. Mr. Koppleman Chairman has burned through a couple of CEOs since Martha’s Sabbatical and during that time they lost the K Mart business which was significant income for the company.

Rule Number One only buy what you know. Here is what MSO is. (SEE MY COMMENTS IN CAPS) Martha Stewart Living Omnimedia, Inc. operates as an integrated media and merchandise company. It creates media and merchandise in the areas of cooking THIS SEGMENT HAS EXPLODED AND GOT VERY CROWDED OVER THE LAST 5 YEARS and entertaining, holidays, crafts, home, whole living, weddings THIS SEGMET HAS TAKEN A HUGE HIT DURING THE RECESSION, organizing, and gardening. The company operates through four segments: Publishing OUCH OUCH OUCH, Broadcasting I’LL GIVE THAT TWO OUCHS, Internet, and Merchandising. The Publishing segment publishes magazines, primarily including Martha Stewart Living for college-educated women, who own principal residences; Martha Stewart Weddings for brides; Everyday Food for the supermarket shopper and the everyday cook; and Body+Soul magazine and Dr. Andrew Weil's Self Healing newsletter featuring natural living content. This segment also publishes Martha Stewart and Emeril Lagasse THE KING OF BAM, BUT TERRIBLY OVER EXPOSED branded books. The Broadcasting segment engages in the production of television programming; and distribution of its library of programming in existing and repurposed formats. This segment also involves in the provision of talent services; and satellite radio channel operations. The Internet segment engages in online advertising sales business primarily through its Web site,, which offers recipes, articles and video, integrated across the Martha Stewart brands in food, entertaining, holidays, home and garden, crafts, weddings, pets, and whole living categories. It also operates, a Web site designed to help women achieve their goals for living better lives; and to guide brides for their weddings. The Merchandising segment designs merchandise and related packaging, and promotional and advertising materials, as well as licenses various proprietary trademarks, in connection with retail programs conducted through retailers and manufacturers. Martha Stewart Living Omnimedia was founded in 1996 and is based in New York, New York.

Ok let's look at Ms. Stewart Fundies. I was surprised to see how small a cap this company is with only about 250 million dollars in capitalization. Its forward looking p/e ratio is a whopping 60+. OUCH that is truly expensive. There is little or no free cash flow but also little long term debt. I just read the Q 2 earnings transcript and can understand why they are struggling. It seems like they are trying to be all things to all media but not doing any very well. I encourage you to read the transcript at Seeking Alpha. This is a 4.75 cent stock with all the makings of a 6.00 stock if they do many things right. If they don’t, with a little work and some luck they might remain a 4.00 stock. This is a fad stock. So much depends on Martha Herself and that commodity does not seem to be drawing like it used to.

We do not and would not own it. It does not get a good rating anywhere we looked, Schwab, IBD, Morningstar, etc all love to hate Martha.

From the "Special Moments in the Oval Office" Gallery 
On this day POTUS had to break up a fight between Lawrence Summers on the Left and Rahm Emanuel on the Right because Rahm had stolen Larry's Apple (In Rahm's hand).  The result, they are both leaving the White House by November.

Salve Lucrum


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