Sunday, October 31, 2010

31 October 2010 Trick or Treat we’ll find out. . .

31 October 2010 Trick or Treat we’ll find out. . .


We read Barron’s this week and you talk about hedging your bets. There were bearish articles and bullish articles. There were bearish bullish articles. And there were bullish bearish articles. Maybe the staff is running for office Tuesday?

I can’t really recommend you run out and pick up a copy of the publication this week. Alan Abelson covered that death of the 30 year bull bond market according to Bill Gross. Santoli tries to make heads or tales out of the Tuesday elections. Savitz once again is pimping Microsoft (We own it). Kopi Tan tells us we had a good October, dah, and takes a shot at what’s ahead. (I do like his column.) In a nutshell, he points to all the positives that have taken place and warns that we are due or overdue for a correction. Then he goes on to tell us burritos are good for our financial health (CMG). Randall Forsyth let’s us know what I thought was common knowledge, the Quantitative Easing will probably much less than anticipated. (That guy needs to watch Bloomberg). Don’t get me wrong, his article is well written and very educational as to the impact of QE II and his return comparisons of TIPS to 10 year yields and how QE impacts all of that will have me digging up some bond and economic educational materials for the rest of the week.

The Week Ahead.

The big announcements this week will be the results of the election on Tuesday, The Feds confirmation of the quantitative easing measure on Wednesday and then the jobs situation on Friday. In the background of those three penultimate events we have quite few others. Personal Income and outlays, The ISM manufacturing index, and construction spending all report on Monday. With the elections and QE on the horizon, only some very extreme data points are going to get the market attention. Tuesday we will have a couple of retail reports and the motor vehicle report. These too will be overshadowed by the election news. Wednesday besides the Feds announcement we will have the inaccurate teaser ADP employment report, factory orders report, the ISM non manufacturing report (Service sector), and the petroleum inventory numbers. Thursday we have new jobless claims and the productivity report as well as non news announcements from the Bank of England and the European Central Bank. And to end the week, we will have Pending home sales overshadowed by the Job situation report. Now it was a mixed bag on our survey as to what you thought of the week ahead segment of the blog. The rating (16 out of 38 voted, thank you.) So I will only take a shot at the employment figure. Look for private sector jobs to improve, not as much as expected. The consensus for private sector is 60,000 new jobs. I am guessing 50,000; unfortunately it will be overshadowed by a significant drop in government jobs. Look for the total unemployment figure to move from 9.6 to 9.7. Sorry!

Do I Cut The Red Wire or The Black Wire?

I am sure many of you followed the bomb in the baggage story this last week. We have been hunting a pecking looking for some possible plays in the market as a result of this avoided (for the moment) crisis). Here are few you might want to look at.

OSIS OSI Systems, Inc., together with its subsidiaries, designs, manufactures, and sells specialized electronic systems and components for applications in homeland security, healthcare, and defense and aerospace markets worldwide. It does not have a lot of margin of safety, but when homeland security beefs up baggage security they should be a winner.

LLL L-3 Communications Holdings, Inc. provides command, control, communications, intelligence, surveillance, and reconnaissance (C3ISR) systems; aircraft modernization and maintenance; and government services in the United States and internationally. They have a much better margin of safety (@16%) and have the some upside to HAS expenditures. LLL could be a take over target as well.

FLIR FLIR Systems, Inc. designs, manufactures, and markets thermal imaging and stabilized camera systems worldwide. It operates in three divisions: Thermography, Commercial Vision Systems, and Government Systems. It too has a nice margin of safety at 18% and no debt. It has had a couple of recent downgrades and we need to do our homework on this. We did loose money on FLIR in 09. We do not own it now.

ESLT Elbit Systems Ltd. develops, manufactures, and integrates defense electronic and electro-optic systems primarily in Israel, the United States, and Europe. We have this in the SL portfolio and it has been doing well for us. It has manageable debt and a sustainable but modest yield 2.2%. It is Israeli based and is very well positioned to work with The US and Israel on Middle Eastern and Arabian Peninsula threats. Oh yeah where were these bombs from? Yemen.

NICE Systems Ltd., together with its subsidiaries, provides multimedia recording platforms, software applications, and related professional services. Its enterprise business solutions include recording, monitoring, quality management, interaction analytics, workforce management, business performance management, and feedback solutions, which are designed to capture interactions, analyze them, and take action based on this analysis to drive enterprise performance.

VRNT Verint Systems Inc. provides actionable intelligence solutions and value-added services worldwide. Its solutions are used to capture, distill, and analyze underused information sources, such as voice, video, and unstructured text.

COGT Cogent, Inc. provides automated fingerprint identification systems (AFIS) and other fingerprint biometrics solutions to governments, law enforcement agencies, and other organizations worldwide.

Many if not most of these will be solid plays or takeover subjects as we invest more in our security for baggage handling. I know because I have said some key words in this post tonight that someone at Echelon has picked up this blog, but I’ll take readers anyway I can get them. Do your homework, but this is a sector that should do well into the next election cycle.

Go ahead and sell everything.

One intriguing article in Barron’s this week by Steven Sears caught my wallet. After bashing the inevitable increase in capital gains, he channels Wall Street Strategist Michael Schwartz who suggest selling all of you stocks with significant gains (I am guessing here but if I follow his logic, you would need at least a10-11% gain) and take the capital gains income this year. Then reestablish your positions with call options after the trade. You would enjoy future gains with less capital tied up and enjoy the lower current capital gains rate of 15%. Food for thought.

Jack Be Nimble . . .

This is a volatile week.  A wise man I paly golf with remided me that If I can guess it (Employment numbers, QE, the election possiblities), it has already been factored into the market.  It will take huge surprises to shake this market.  My advice is be nimble and make sure your stops are in place in case we get the surprise. 

The next time you think I have too much time on my hands please remember this picture.

Salve Lucrum


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