Tuesday, September 28, 2010

28 September 2010 Cause You Got, Volatiltiy


28 September 2010 Cause You Got, Volatiltiy

Cause You Got, Volatiltiy. Walk, Volatility. Talk, Volatility. Smile, Volatility. Charm, Volatility. Love, Volatility.

You all know who Art Rupe was. Well I bet one reader knows who he is, as he (Rupe aka Art Goldberg) went down to New Orleans in 1952 and heard Lloyd Price in a club sing a song called Lawdy Lawdy Lawdy Miss Clawdy. Rupe, who had just started a record company named “Specialty Records” wanted to record Price and his song. Price had no band, so he got a hold of a contact of his, Mr. Dave Bartholomew, who had band to play behind Lloyd. (FYI the piano player in the band was a guy you might know. Antoine Domino, aka Fats Domino). That launched Prices career and in 1959, he had a No 2 Billboard hit with “Personality”. But I digress.

You may know we did ok in 09 and early 2010 playing the Barclay’s ETN (VXX) for the Chicago Board of Exchange VIX Volatitlity Index. We chased it up and down as volatitly entered and left the market. When we thought things had calmed down in about May, we took a little sting and left the game. The VXX is currently selling at about 16, an almost all time low.

Now do you think we have seen the end of fear and confusion in the market? Do you think that the average price of stocks in the S & P 500 will change more than 16% in the next year? (That is the essence is what the VIX measures). I think it will and feel this maybe an interesting time to get back in the VXX. We are going to take baby steps and buy in below 20 over the next 30 days. We would like to have about 3% of the portfolio in VXX by the mid term elections. We are looking for VXX to climb back to 30 by the end of the year. THIS IS SPECULATIVE. Do not use grocery money on this one. Vegas funds only.

Portfolio Action Today

We added to our position in RINO RINO International Corporation, through its subsidiaries, 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.

We are down about 6% on this stock and it took a 2% hit today which only makes it look more attractive.

We are also watching UNG very close. We are down about 12% on this Nat Gas Play, but feel long term it’s a solid play. When we have more cash we will add to this position.

On news that Knightsbridge Tankers is buying an existing cape-size tanker from Golden Ocean and GO will take a 28% of the 65 million dollar purchase price and buy Knightsbridge stock VLCCF, we added to our position. We established this position a month or so ago after doing some homework on DRYS (Mentioned in the lightning round last week by Mr. Cramer, not positively). We got in on DRYS and VLCCF but stopped out of DRYS quickly. Knightsbridge has been doing well (up about 16%) and we will add on the drop today.

KO has all kinds of news today but look for what is important. They are pumping a billion dollars in the Phillipines, they formed a coalition of sports teams to fight child obesity, but what is really important is the approval of their purchase of CCE North American Bottling operations. Both the US and Canadian officials are allowing this purchase. The official announcement will be Friday and we (IBD, The Journal, Cramer, etc) are expecting some positive forward looking statements. It is up about 8% over the last 3 months, but there are some impressive target prices out there above $60 a share and we might see those escalate after Friday. They have a 3% yield at this level and we might hear about a bump in dividends Friday, note the word MIGHT. Vectorvest has the company valued at $74 a share.

You asked for it you got it

We were asked today about banking stocks. Actually one specific stock, but its hard to talk about one stock when they are all in the same boat. (That would be a leaky sailboat with no sails.) One reader was contemplating MS Morgan Stanley , a financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. It operates in three segments: Institutional Securities, Global Wealth Management Group, and Asset Management. The Institutional Securities segment provides financial advisory services on mergers and acquisitions, divestitures, joint ventures, corporate restructurings, recapitalizations, spin-offs, exchange offers, and leveraged buyouts and takeover defenses, as well as shareholder relations; capital raising; corporate lending; investments; and sales, trading, financing, and market-making activities, including equity trading, commodities, and interest rates, credit, and currencies, as well as financing services, including prime brokerage, consolidated clearance, settlement, custody, financing, and portfolio reporting services. The Global Wealth Management Group segment offers brokerage and investment advisory services covering various investment alternatives comprising equities, options, futures, foreign currencies, precious metals, fixed income securities, mutual funds, structured products, alternative investments, unit investment trusts, managed futures, separately managed accounts, and mutual fund asset allocation programs; financial and wealth planning services; annuity and insurance products; credit and other lending products; cash management services; retirement services; and trust and fiduciary services. The Asset Management segment offers products and services in equity, fixed income, and alternative investments, which include hedge funds, fund of funds, real estate, private equity, and infrastructure to institutional and retail clients through proprietary and third party distribution channels. This segment also involves in investment activities. The company was founded in 1935 and is headquartered in New York, New York.

First off, the thinking is quite sound if you are looking at the fact that banks have chosen (under threat of closure) to clean up their balance sheets, that there seems to be monies headed back into the market (for those banks that have brokerage operations attached to them), and that there will be consolidation with in the industry. So let’s look at the fundies.

The stock is selling at 24 and change creating a forward looking P/E of 7.48 making it look cheap. That compares to its 07 highs of $68 dollar a share if you are into irrelevant historical data. In July they were bragging about a decline of ONLY 21%. By comparison to other dogs in the dog show, I guess it was not bad, but it was still a dog show. In reality if you read Morningstar and check the SEC filings, some less than forth right accounting games let them improve the income factors to the tune of about 14%, so their real decline and an adjustment for an asset sale would have been a 36% decrease. Now our reader is guessing we are near a bottom, I assume. We don’t like looking for bottoms (Ok I’ll wait a minute here. . . . .) but let’s play along.

The stock is down 15% year to date. Price to book and price to sales is healthy or at least interesting. If my figures are right they have free cash flow of just under 8 billion dollars? I am having a hard time with that, but I checked it in three sources. Their return on equity is a very low 8% but we have to cut them some slack because of the Federal Reserve Oversight situation at the moment. Their margins at 77% are some of the best in the industry. Target prices from analysts range from 33 to 36 a share.

From a descriptive stand point MS is diversified enough to whether down turns in the various market segments like M & A, Investment Revenues, Proprietary Trading, and Forex exposure. It apparently has a big bucket of cash to make investments with. Here is the big thing I don’t like about the company at this moment in time. The Executive Suite. Mack the former CEO is now the Chair and Gorman the new CEO has to work around Mack and the Board to be his own man. There is an independent board member named Kidder who might help this balance of power, but it is not the best of scenarios for this precarious industry.

As a speculative play I could see easing your way into this dog in the hopes that it becomes a best of breed. It will probably be a long term 18-24 month play, at least until Morgan can hit stride as CEO. Tiny steps might be the answer here. If a person was thinking about a position representing 10% of their portfolio, I would buy into it on the dips over the next three month. As the bank regulations get on paper and Gorman knows the rules for those sectors, it might be a good play.

Another swing and a miss

I suggested the Consumer confidence number would be flat at 53.5 but it came way down to 48.5, but the market took it in stride.  We did get the WAG Wallgreens call correct it did beat and blew past even what we said.  They reported 49 cents a share, the estimate was 44 and we pegged it at 46 cents. 

Drinkin' Wine Spodee Odee

Last night, Monday, the wife was up for a night out so we went to our local pleasure palace, Hannas.  We had a tremendous meal and since I know she was not going to be able to join me in a touch of wine, I brought a long a 2005 Anderson's Conn Valley Vineyards Éloge.  Tod Anderson learned from his dad Gus how to lay down a great glass of Cab blend and this one was great.  It was poured through a Vinturi or as I call it a "Barbie Toilette".  This was the perfect inky purple and had some exotic spices and florals on the nose.  It really clung on tight to the glass (Dave has great stem wear and that can make all the difference).  I got berries and chewy earthy smoky tastes.  It was great.  It even put a nice smile on Dave's face when I gave him a pour.  Good stuff.

From the "Recreation at The White House" Gallery

Nixon and Johnson take a brief break from a stressful game of Finger Football Circa 1968
Salve Lucrum


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