30 November 2010 I Do Not Like Green Eggs and Ham

BAGAKOAA 30 November 2010 I Do Not Like Green Eggs and Ham

While I think we got our guesses right about the home prices (down) and PMI and Chicago’s manufacturer index (UP) correct, the market did not cooperate. Another half a point got taken off the table. But life goes on.

The Senate actually got work done. Yes you heard me right they actually got some work done. No they did not address unemployment, nor did they agree on anything related to the retiring tax cuts, nor did they make any head way toward immigration issues, they decided to take on the controversial subject of safe food. That’s right I an sure the country must be equally divided on the subject of safe food. Somewhere out there is a person who just does not want safe food.

Now I can’t blame the Senate for not taking on tough subjects with the four and half weeks left this session. After all there are a dozen or so new Senators that have to learn the really important stuff like how to use federal franking privileges to get re-elected in 6 years.

Enough politican bashing for one blog. They actually did approve the safe food bill which means that FDA can recall tainted foods instead of intimidating companies that sell tainted foods. It requires large food processors to register with the FDA. The FDA will create detailed food-safety guidelines. They will also create new safety regulations for large producers of the highest risk fruits and vegetables. It will also establish stricter standards for imported foods. They will also increase their inspections of domestic and foreign food facilities.

The law does not address eggs, meat, or poultry because even tainted pork tastes pretty damn good with the right gravy. Just kidding, those categories of foods are regulated by the Agriculture Department. Funny I thought fruits and vegetables were agricultural products? But I digress.

So I was saying to myself, “Self,  how can we make money on this exciting news?” Well I called every publically held company in North America and asked,  "Do you make products for the food-safety industry?",  and here were the folk who said yes.

WAT Waters Corporation operates as an analytical instrument manufacturer primarily in the United States, Europe, Japan, and Asia. The company designs, manufactures, sells, and services high performance liquid chromatography (HPLC), ultra performance liquid chromatography (UPLC), and mass spectrometry (MS) instrument systems and support products, including chromatography columns, other consumable products, and post-warranty service plans.

SDIX Strategic Diagnostics Inc., a biotechnology company, together with its subsidiaries, develops, manufactures, and markets proprietary products, services, and solutions in the pharmaceutical, biotechnology, diagnostics, food safety, and environmental markets. Its life science portfolio includes products and custom services that supply critical reagents used in the life science research and development markets. These products and services comprise custom antibodies, pre-made catalog antibodies, in vitro diagnostic-grade antibodies, proprietary critical reagent products, associated bio-processing services, and custom assay design and development services, which are sold to pharmaceutical, biotechnology, and diagnostic companies, as well as to biomedical research centers. The company also provides industrial biodetection products, including immunoassays, which represents advanced technology for the detection of food pathogens, as well as water and soil contaminants.


PTC PAR Technology Corporation provides professional services and enterprise business management technology to the hospitality industry worldwide. The company operates through two segments, Hospitality and Government. The Hospitality segment provides restaurant management technology solutions that include fixed and wireless order-entry terminals, self-service kiosks, kitchen systems deployed on printers or video monitors, food safety monitoring tools, back office applications, and enterprise business intelligence software.


NEOG Neogen Corporation, through its subsidiaries, engages in the development, manufacture, and sale of various products for food safety testing and animal health applications. It operates in two segments, Food Safety and Animal Safety. The Food Safety segment primarily produces and markets diagnostic test kits and complementary products that detect dangerous and/or unintended substances in human food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, drug residues, pesticide residues, and general sanitation concerns. Its food safety products also comprise bioluminescence-based diagnostic technology.


MIDD The Middleby Corporation, through its subsidiaries, engages in the design, manufacture, and sale of commercial foodservice and food processing equipment. Its Food Processing Equipment group manufactures preparation, cooking, packaging, and food safety equipment for the food processing industry.


ECL Ecolab Inc. engages in the development, manufacture, sale, and service of products that clean, sanitize, and promote food safety and infection prevention.

GMO General Moly, Inc. engages in the exploration, development, and mining of molybdenum properties in the United States. Its primary asset is an 80% interest in the Mt. Hope Project containing proven and probable molybdenum reserves totaling 1.3 billion pounds located in Eureka County, Nevada.

VIFL Food Technology Service, Inc. owns and operates an irradiation facility in Mulberry, Florida. Its irradiation facility uses gamma radiation to provide contract sterilization services to the medical device, food, and consumer goods industries, as well as Cobalt 60 for the sterilization of medical, surgical, pharmaceutical, and packaging materials.

If that last one sounds familiar, we played with it back in mid 09 and made a little jingle (technical financial term for profit) on the stock.

After doing some homework and I know you will do your own, we took a couple of new positions. We got back into our old friend VIFL, we started a new position in NEOG, and we also are giving SDIX a shot. Please do your own homework as these really are shots in the dark. I have not scrutinized their quarterly earnings, just picked what looks good and put some orders in before all the big money players start shopping. (Who am I kidding they probably have already checked out.)

The Pillar of Salt

Salvay and Luecrum get a hold of old portfolio statement of mine. This is why we never look back.

http://www.xtranormal.com/watch/7880535

Salve Lucrum

29 November 2010 Back at the Game

BAGAKOAA;

29 November 2010 Back at the Game

I hope you had a great holiday week. The overall market scooted down about one percent last week, but it could have been worse. One interesting new item Salvay and Luecrum did not mention was the misplacing of spent nuclear rods by Fedex. With the advent of that event, I wonder if a popular gift this year will be a Geiger Counter. That way you could see if your gifts shared warehouse space with some used plutonium.

Anyway we finally made it home and I came from out of the cold. That did not work so well for James Arness in the 1951 version of the “The Thing”.

Is the Time Rite for Reits

As you know we get a mountain of investment e-mails newsletters, blog feeds magazines etc. Lately we have seen a lot of pimping of real estate, mortgage originators and REITs. In all of our reading we may have to agree we are coming close to a bottom in real estate. I know there are a few of you who would say I am crazy. As Billy Joel said, “You maybe right! I maybe crazy. But it just might be a lunatic you’re looking for.” But alas, Barron’s had a decent article about a Newport Beach California research firm that analyses almost 100 REITs.

(For the new players in the game an REIT is a real estate investment trust. In order for a company to qualify as an REIT, it must meets some specific standards as set forth by the IRS. In brief, they buy and manage income bearing real estate properties. Think malls, professional buildings, large apartment complexes. For a detailed explanation of an REIT CLICK HERE.)

Anyway, Green Street Advisors are bullish about REITs, but not overly enthusiastic. They imply that the best may be behinds us but there is still some upside. We encourage you to read the entire article, but taking a few liberties, they are saying there are some good REIT values such as AVB Avalon Bay Communities, Inc. engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States. As of January 31, 2009, the company owned or held a direct or indirect ownership interest in 164 operating apartment communities comprising 45,728 apartment homes in 10 states and the District of Columbia. And SPG Simon Property Group, Inc. is a real estate investment trust. The firm engages in investment, ownership, and management of properties. It invests in the real estate markets across the globe. The firm's portfolio includes regional malls, premium outlet centers, the mills, community / lifestyle centers, and international properties. Simon Property Group was founded in 1960 and is based in Indianapolis, Indiana.

We do not own either of these or any other REITs at the moment. Here are some interesting data points to consider. The S & P Case Shiller price index is showing growth in 16 of the 20 key market areas. The top 10 city index is up 4.1%.

Also the Mortgage Bankers Association (MBA) recently said the delinquencies rate have declined of late. Most of those drops were due to the fact that banks are getting aggressive in closing out foreclosed properties. (I am sure we all have friends who have talked about the number of short sales being executed now.) The MBA press release said:


“Mortgage delinquency rates declined over the quarter and over the past year, due primarily to a large decline in the 90+ day delinquency rate. The number of loans in foreclosure also dropped, bringing the serious delinquency rate to its lowest level since the second quarter of 2009.”

We will be looking at REITs to help diversify our portfolios and you might want to start doing some homework on this type of investment. The Barron’s article would be a great start. Ironically, tonight while I was writing this segment, we got a newsletter from Kiplinger which was very bullish on commercial real estate and REITs. Do you believe in coincidence?


A Long Long Time Ago


I can still remember how the music used to make me smile. . . Don Mclean said and sang it. It was a long, long time ago that several of our current readers got a hot stock tip on a company called NFLX Netflix from yours truly. Several of us got in at 7-9 dollars a share. The stock went to about 22 when I heard about Cox Cable expanding its On Demand offering and lowering its price to customers. I had a feeling this would do to Netflix what Netflix had done to Blockbuster. I suggested we all get out of NFLX. A few did and were happy with the double at 17-22 a share. One stayed in to 28. One stayed in to 64, but stayed in for the ride back down to 20. (They actually forgot they had it.)


Why do I take this trip down memory lane? Just to let you know just how good I are. Well not really, I wanted to bring your attention to how well the stock is doing and how they have taken on demand and almost all other video streaming options out of play. Their on line streaming and recent price schemes to get the month DVD renters into on line streaming will truly enhance their bottom line. They are at a record high of 191 a share and change. Their trending is beautiful. Do Your Homework, but beware this is not a cheap stock. I do not mean cheap as in the price of the stock, I mean its forward looking PE ratio is 51.8. Here is the reason. You are buying a very large competitive moat with Netflix. (For any new readers, that means it would be hard-but not impossible- to directly compete against Netflix offering a like product or service). You are also buying into growth and an expanding gross operating margin. When the stars align like that you have to give it some serious thought. It is scary to by a stock near its 52 week high, but there was a time when 15 dollars was Netflix’s 52 week high.


Increase Your Yield with Fertilizer


If you even remotely keep an eye on the news or the market we all know about the battle to take over POT Potash Corporation of Saskatchewan Inc. produces and sells fertilizers and related industrial and feed products worldwide. The company offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acid, which is used in food products and industrial processes. It also produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid. The stock went crazy when BHP of Australia attempted a buyout of POT. The thesis behind the bid was solid. Global shifts to a protein based diet along with smaller grain yields in the US and a drought and fire in Russia was driving the price of phosphates and potash (Major ingredients in fertilizers.). The margin of safety at the moment for POT is about 11%, but its not the only game in town. The other one is MOS The Mosaic Company engages in the production and marketing of concentrated phosphate and potash crop nutrients for the agriculture industry worldwide. The company produces phosphate crop nutrients for use in crop nutrients and feed phosphate for animal feed ingredients.


We have to acknowledge this bit of linkage came right out of today’s IBD. This is becoming a more important periodical in our trading and investing schemes. If you have an iPad there is an affordable IBD app you can download. I highly recommend it. The article points out the very bullish 12-24 window for global fertilizer demand and POTs and MOSs positioning to take advantage of the need for fertilizer. Here is a little insight. In 07 and 08 demand and prices for grain were not as hot as they are now. Farmers in industrialized countries cut bask their fertilizer intensity to drop their acreage yield. With increased demand and escalating prices we are now seeing the exact opposite. Farmers are doing their best to increase acreage yield and as a result driving the prices up for phosphates and potash. It is a vicious circle and should continue for 12- 24 months. Both POT and MOS should do well. Do your homework and consider long term options for the play.


The market resisted resistance today


Ireland debt issued continued to keep our happy holiday shoppers from moving the market up. Despite an Irish settlement whose details we still don’t grasp, the willy nillies through Spain and Italy into the mix to make an ugly mid day today. As the S & P neared the 1,174 level (remember last week we talked about the resistance level at 1,174 the 50 day moving average.) buyers got in the market and brought the market of its midday low.


Itty Bitty Stock Tips


Here is a cool site that acts like Twitter. You actually use it through or with Twitter. Check it out. Be sure to read the posts. Check out the authors profiles. There actually is some great stuff.

 We have come a long way baby

Salve Lucrum

28 November 2010 The Week Ahead Hosted by

BAGAKOAA;

28 November 2010 The Week Ahead Hosted by

Salvay and Luecrum

Just click on the link below

http://www.xtranormal.com/watch/7859145

26 November 2010 Short But Not Short Enough

BAGAKOAA;

26 November 2010 Short But Not Short Enough

Yeah, today was a shortened trading session. It could have been a lot shorter as far as we were concerned. We lost almost a point in most of the indexes. Let’s just write it off to an overdose of triptophan. The initial retail feedback about Black Friday was positive, but rockets flying in Korea, sovereign debt issues in Europe, and a lost shipment of spent nuclear core rods caused a correction from our Thanksgiving Eve faux Rally. The metals sector which has been the work horse of the last rally is even slipping. Oh yeah, Vector vest finally agreed with my November 12 call that the rally is over.

The IBD declared we are officially in a correction (Dah!). Keep an eye on two numbers. The Dow, which closed today at 11,092 is coming precariously (love that word) close to its 50 day moving average. If it drops through, its next technical resistance is about 9950, its August low. The other number is the same comparison for the S & P 500 (The Index we watch closely). It closed today at 1,189. Its 50 day moving average is 1,174 and it also has an August low of 1,039 as its next major resistance point.

Next week will be a busy economic week, but I must wait for this weeks Barron’s to be released later tonight before we rattle on about that.

So how do you play this. As we suggested on Wednesday, just be patient. Have you stops in place. Take your profits when you want. In a conservative to moderate portfolio, I would not be buying anything in this correction.

Those wanting to live dangerously, Play the VXX (the iShares ETF for the volatility play). But I caution you that I have missed timed this about three times in the last six months and got burned. I have not been as patient with this play as maybe I should.

Here are a few to do homework on. TIFF Tiffany & Co., through its subsidiaries, engages in the design, manufacture, and retail of fine jewelry. Its jewelry products include gemstone jewelry, gemstone band rings, diamond rings, wedding bands for brides and grooms, non-gemstone, gold or platinum jewelry, and sterling silver jewelry. The conservative management team was talking up expected holiday sales and some sexy numbers for 2011. Remember CEOs are normally conservative and do not want to disappoint. So when a conservative management team is give positive earnings guidance, it is usually a good thing. DO YOUR HOMEWORK.

AMZN, Amazon jumped up today as CommScore research showed an unexpected hike in on line retail sales and trends. This was good for us who are long and holding 60-90 day call options. If you want to see something sexy, go to almost any interactive charting tool and overlay a one year AMZN Chart with a 50 day, 100 day, and 200 day simplified moving average (aka SMA). That is sweet. Those three lines heading up simultaneously combined with decent volume (today’s valume for AMZN was huge) create a hard to reverse momentum. I would guess we will see more and more institutional monies coming in over the next few days. It is not too late, but if this is a trade and not an investment, play a march or April call just out of the money. (If anybody wants a more detailed explanation, drop me a note at brian.cronin@padi.com)

GES Guess?, Inc. designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. It offers collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, and knitwear. They also increased 2011 earnings estimates from 1.02 a share to 1.06 a share. The stock has done well over the last tow day, but I do not think all the big houses are done moving their monies into this stock. The margin of safety has dropped a lot over the last few days. However remember the margin of safety is the difference between the current price and the analysts average target price. As this new earnings guidance gets digested, we should see some bumps in the target prices.

Disclaimer: at this moment we DO NOT OWN TIF and GES. WE DO OWN AMZN AND AMZN OPTIONS.

In times like this, its good to get a good book and try and read about investing, money management, economics, or

Well, try and read a good book!

Salve Lucrum

24 November 2010 It Was Profit and Bargain Week

BAGAKOAA;

24 November 2010 It Was Profit and Bargain Week

The economic data points had very few surprises this short week. That lead to some interesting roller coaster rides, but just like a roller coaster we ended up where we started.

GDP came in close to where we expected, existing homes sales did what we expected, Durable goods order did surprise to the downside (Sorry I missed that one.), and personal income and spending came in pretty close to what was expected.

We were busy on Tuesday getting things ready for the Thanksgiving holiday so I did not see details of what brought the market down. By the time we started trying to figure it out this morning it did not matter as it was almost a wash by the end of the day.

Pin Action in the Salve Lucrum Portfolio

OK because we took some profits of late and we are sitting on some cash, we are going to change tactics a bit. I have been watching earnings guidance statements of late and found a couple that look interesting. We are playing these with call options about 60-90 days out close to in the money. I have explained that in the past so I won’t bore you again but I will demonstrate what I mean with my first trade.

VAL The Valspar Corporation manufactures and distributes coatings, paints, and related products primarily in the United States, China, and Europe. The company's Coatings segment offers decorative and protective coatings for metal, wood, and plastic, primarily for sale to original equipment manufacturer customers. Its products include primers, top coats, varnishes, inks, sprays, stains, fillers, and other coatings used in a range of manufacturing industries, including building products, appliances, furniture, transportation, agricultural and construction equipment, metal packaging, and metal fabrication. This segment also provides coatings for interior and exterior use in metal packaging containers, such as food containers and beverage cans; coatings for aerosol and paint cans, crowns for glass bottles, plastic packaging, and bottle closures; and coil coatings that are applied to pre-engineered buildings and building components. In addition, it offers general industrial product line that includes a single source for powder, liquid, and electrodeposition coating technologies; and wood product line, which consists of decorative and protective coatings for wood furniture, building products, cabinets, and floors, as well as provides color design, manufacturing, and technical services for its customers. The company's Paints segment offers architectural paints, such as interior and exterior paints, stains, primers, varnishes, and high performance floor paints; and specialty decorative products, including enamels, aerosols, and faux finishes used in the do-it-yourself and professional markets. It also provides automotive refinish and aerosol spray paints. This segment distributes its products through home centers, mass merchants, hardware wholesalers, distributors, and independent dealers. In addition, the company offers specialty polymers, gelcoats, colorants, and furniture protection plans. The Valspar Corporation was founded in 1806 and is based in Minneapolis, Minnesota.

VAL had some very promising comments at their earnings release this week. Their fundamental are solid (not a nice and pretty as I usually gather.) In researching their option chains, I found a January 2011 35 dollar call option for 69 cents a contract. Remember a contract controls 100 shares of stock. For $69.00 I can control $3,387 worth of VAL. Volume and price has been following the positive statements. If I was buying this long I would be looking for a $36.00 stock by mid January. If I got that I would make about 6% on the $3,387.00. The same move in the stock will have a much more significant impact on the call option. If the stock moves toward 35 dollars a share my 69 cent contract will be worth about 1.25- 1.35. That would be a 95% gain.

The secret is to know when to get out. As you will see in one trade below it can be very tempting to get out early. However if you don’t your time value horizon collapses very quickly.

On similar news about future earnings we bought some call options in HRL. Hormel Foods Corporation, together with its subsidiaries, produces and markets various meat and food products in the United States and Internationally. It offers meat products, including fresh, frozen, cured, smoked, cooked, and canned meat. The company provides perishable meat products, which include fresh meats, sausages, hams, wieners, and bacon; poultry products that comprise JOTS products; and shelf-stable products, including canned luncheon meats, shelf-stable microwaveable entrees, stews, chilies, hash, meat spreads, flour and corn tortillas, salsas, and tortilla chips. It also offers nutritional food products and supplements, sugar and sugar substitutes, creamers, salt and pepper products, sauces and salad dressings, dessert and drink mixes, and industrial gelatin products. In addition, Hormel Foods offers refrigerated, microwaveable, multi-portion potato-/pasta-based side dish products. The company sells its products through its sales personnel, as well as through independent brokers and distributors. It was formerly known as George A. Hormel & Company and changed its name to Hormel Foods Corporation in January 1995. The company was founded in 1891 and is based in Austin, Minnesota.

These were March 2011 50 dollar call options and we got in at $1.78 per contract. So for every contract we bought, we are controlling $5,000 of Hormel stock for $1,78.

There were some nice pre-earnings announcements for DSW DSW Inc., together with its subsidiaries, operates as a footwear specialty retailer in the United States. It offers dress, casual, and athletic footwear for women and men, as well as accessories, handbags, and hosiery. The company also sells shoes and accessories through dsw.com. As of January 30, 2010, it operated 305 DSW shoe stores; and 356 leased shoe departments for other retailers. The company was formerly known as Shonac Corporation and changed its name to DSW Inc. in February 2005. DSW Inc. was incorporated in 1969 and is based in Columbus, Ohio. As of January 31, 2009, DSW Inc. operated as a subsidiary of Retail Ventures, Inc.

With the positive statements for 2011 we bought some April 2011 40 dollar call options for $1.00 a contract.

Just to show you this is not a for sure thing, we took a 44% loss on some call options yesterday on TEVA the Israeli based Pharm. We saw an upside of 37% on the call options but we missed our window and will suffer through the 44% loss.

Today we did take a beautiful 77% gain on some April 2011 call options for Amazon. Now I will be the first to say we are pulling out a bit early. When we did this trade and we mentioned here about 5 weeks ago, we were thinking about going long and buying the stock. At 110 a share it would tied up a lot of cash and we wanted to play the Holiday on line shopping season as well as the success of the Kindle I chose to go the options route and controlled a significant block of shares to see this 77% gain. If I had bought the stock I’d only be looking at about an 11% gain.

Since we can enjoy dividends as call option owners, we switched out long position in VLCCF, Knights Bridge Shipping from equities to an equal amount of call options contracts. The trade was neutral as we were dead even on the stock. It freed up some cash and we now have March 2011 20 dollar call options on VLCCF. If you are wondering we got the calls at 3.70 cents. The stock closed at 23.21 today so I will be in the money at 23.70 a share. That should be no problem. I am looking for a 40% gain by February on the calls.

We did the same exchange on our long position on our NAT GAS ETF UNG. However since this is just a play for the underlying commodity, we went way out to January 2012 and bought 7.00 call options for 85 cents each contract. We would be in the money at 7.85 cents. UNG closed today at $6.05.

And finally we are quite happy with our progress on MDR so we added to our position, but I was in an option groove so we bought some May 2011 MDR 15 dollar calls for 4.23 cents each contract. MDR closed today at 18.49 a share.

The view from our deck in Utah.  BEFORE the storm.

Happy Thanksgiving and Salve Lucrum

BAGAKOAA 21 November 2010 The Rest of the Week Ahead

I hope you were not too disturbed by the tension between Salvay and Luecrum on the blog post yesterday. In that blog, Salvay indicated my guess on existing home sales would be down to 4.8 million. Well, we were at 4.5 million so 4.8 would be an upward movement not a downward movement. We do think there will be a downward movement and the number will be 4.35 million not 4.8. It should ding (a financial term for make it go lower) the market a bit.

Wednesday we will se the durable goods order number. Remember that all the big stuff we make like washing machines, air conditioners, airplanes etc. The prevailing wisdom is showing a downward move to -.1% from a 3.3% the month earlier. We do belie it will be down, but not that badly. Look for a .5% reading.

Later in the day look for personal income and personal spending to improve. So how do you play these moves. You can’t. Here is the reason. The market is definitely sideways (maybe even downish) but there is very light volume. That means there is no direction. Keep an eye on your best of breeds, cautiously add to the dips, and don’t be afraid to take some year end profit.

Here is a quick shot of the S & P 500 and you can see the sideways movement and the average to below average volume.

Hope you all have a great week and Thanksgiving. I have learned that when you want it to snow, just go out and shovel the sidewalk and driveway. Works almost everytime.

Salve Lucrum

20 November 2010

BAGAKOAA;  I am up in Utah enjoying a brief Holiday so I will let Salvay and Luecrum start off the week ahead segment of the blog and I will finish up later.  Enjoy

http://www.xtranormal.com/watch/7750003

Salve Lucrum

18 November 2010 Government Motors Day

BAGAKOAA;

18 November 2010 Government Motors Day

Thank you all for the feedback about my little experiment with xtranormal. While almost everyone thought it was cute and creative, there were many who had buffering problems and imagined our typical blog turning into a 90 minutes media event. I will use Salve and Lucrum sparingly and keep an eye on the technology as it improves.

I had the opportunity to talk with a young lady today who has entered the working world and is now setting up her 401 K plan. We mentioned her a few months ago and now it is time to “Get In The Game”. Hopefully she will be a regular reader of the blog which will make her the 44th reader. Welcome Lauren.

Also, welcome Frank and Aunt Kay. From their replies it appears they too will be regular readers. Frank is a knowledgeable investor and is very familiar with Asian and European Markets. I hope he corrects me when I mis-speak about those markets. Some of you really enjoyed the xtranomal piece about QE II from last week. I gave credit to "a reader" and did not mention their name. Ben, thank you for forwarding the QE II piece. (He is so needy.)

Today we saw the market reaction to the successful IPO of GM, some stability in the Ireland sovereign debt issue, and a very positive report from the Philadelphia Federal Reserve, which might put an end or at least a curtailment to the latest round of Quantitative Easing. This buoyed (not to be confused with booyahed) the market up 1.5-2% all day long. Volume was light especially if you back out all the GM pin action. (Ok I know a few of you want to know what that means. There are three things I look for to determine where the market might be going. First I look for the direction. Is it up? Is it down? Or is it sideways? Then I look at how many people were actually playing in the game on that day. That is determined by the number of shares traded compared to its 50 day and/or 200 day average. If the shares traded are well above the average-regardless of the direction- than that implies we have institutional investors-banks, insurance companies, hedge fund managers- in the game. Then I track those trends over the last seven trading session to find a trend. Remember 70% of your stocks price fluctuation is driven by the overall market and its sector.) So we had a quiet positive day. Give me 4 more of those over the next 6 days and we might be using the R word again. RALLY. Here is the 30 day chart with my notations.

See the little arrow on today’s volume? Then compare it to the big arrows on the 3 nasty days we saw in the last 7 trading sessions.  You can see the down and right arrow at the top was when the rally clearly ended. That little brown line on the bottom is the 50 day average. As you can see today’s volume was light and when you back out the GM volume, it was quiet out there today.

Baby You Can Drive My Car


Bloomberg on line had one of the best articles about the GM IPO. It was titled "General Motors Shares Climb After $20 Billion IPO". I’ll admit, not real creative, but David Welch, Lee Spears, and Craig Trudell did a great job of explaining the nuts and bolts of the GM IPO. I suggest reading the article in its entirety. Tim Guitner and the Treasury will have to be very patient as GM will need to get 53 bucks a share for the rest of the GM stock they hold in order to break even on the bail out.

A bad week for MELA Sciences


If you remember, on Monday I suggested you consider a very speculative play on MELA, a company developing a screening technique for Melanoma, the nasty skin cancer. A lot was riding on the FDA review on Tuesday. It came back negative and as suggested here the stock dropped 54%. We read the FDA analysis yesterday ZZZZZZZZZZZ, oops sorry it was a gripping read. And while The FDA did not approve the test and apparatus, it did not close the door on the device. So I was thinking you buy it when it’s in the dirt and even make more money when they resubmit and possibly pass. Risky but fun. Well this morning I got an alert (have not bought the stock yet but flagged it.) and they, MELA, are being sued in what appears to be a class action law suit for security fraud about statements made prior to the FDA release. So the stock was down even more today. My guess is this attorney lost his ass on the drop and is just lashing out. Some people just can’t take a joke. Anyway, I am trying to get a hold of the complaint filing to see if there is a smoking gun or just some upset shareholders.


Can you buy me now?


This is a quickie, but I got a heads up from UBS research (I think, if so thanks Tim) that Qualcom might be back in play. DO YOUR HOMEWORK, but at quick glance, I liked what I saw. It has a nice margin of safety (remedial reminder-that means its current price is comfortably below the average analysts target prices.) as recent target prices are in the 60 range and it is trading for 47.98. Its debt is non existent, its net and operating margins are really sexy (financial term for way above industry averages), its ROE, return on equity is healthy, its free cash flow is exploding, (but I want to tear apart the cash flow and balance sheet reports for Tom Trickery), and its forward looking PE is in line with industry levels. (About 16 a little richer than the S & P 500 PE of 14). Check it out. We DO NOT OWN QCOM

Dividend + ETF = Profit Maybe

We get several notes a month asking if chasing dividends is a good thing. We usually explain that dividends are just on leg of the three legged chair of shareholders yield. You have dividends, paying down long term debt, and stock buy backs. So yah, it’s a good thing to chase dividends. Then we get asked how much of a dividend yield is a good return. We usually explain that if you shoot for the 10 Year Treasury Yield in a dividend yield it will serve you well. Today that would have been 2.4 oops sorry, 2.7 no sorry it was 2.9 ooops anyway you get the point its kinda a moving target right now. (I thought QE II was going to make the 10 year go down?) Anyway, we would suggest looking for about 3%. Now you can get out any one of a dozen stock screeners and screen for stocks that have a 3% or better dividend yield. For kicks I just did that on FinViz and got 1,483 stocks. Easy enough. BUT we want to make sure those dividends are sustainable. So we screen those stocks by their payout ratio. I chose to use a payout ratio of less than 40%. (The higher the percent, the more they are burning up assets to keep their shareholders happy with the dividends and the less they have to spend on advertising or holiday parties.) With that screen in place we are now down to 133 stocks. Anyway you get the point. Once you get a manageable list you still have to do the tedious homework that only geeks like me like to do. (Sorry fellow geeksters.) Another way to do this is to buy a bucket of prescreened stocks via an ETF.

I have done some homework for you and suggest you look at DLN and FVD. DLN the Wisdom Tree Large Cap Dividend Fund has had a decent performance of late with an annual return of 9+%. Here is a snapshot of their top holdings.

FVD the First Trust Value Line Dividend Index Fund has had a recent return of 11+% and here is a shot of its performance for you to look at.

If you like dividends, but don’t like the homework necessary to find the great gems out there, these ETFs just might be the answer. If you were wondering if this came from one of the 382 articles I get everyday, it did not. This came to me as I was swimming laps yesterday morning. Then we had to see if there were ETFs based solely on dividend yield. There are not many but these two seem to be best of breed. If you are not a fan of ETFs, look at them anyway and see their top holdings. There are some great value buys on the list.

Gobble Gobble

We leave for Utah tomorrow at O Dark Thirty, but I will be on line and probably posting with sporadic frequency.  If I get lazy, enjoy the weekend and the Thanksgiving Week.  I will also have my cell if you need me. 

Salve Lucrum

17 November 2010 A New Blog Format

BAGAKOAA;

I am trying a new blog format.  Let me know what you think.  Please click on the link below.

http://www.xtranormal.com/watch/7706165

Salve Lucrum

You Like Me You Really Like Me

BAGAKOAA;

16 November 2010 You Like Me You Really Like Me

I was blown away to have several people send me e-mails and one actually called regarding content from last night. First was the call I got that pointed out that I never gave the name or the Ticker for the Melanoma drug test company awaiting word from the FDA that was supposed to be released on Thursday. Well the Lord works in mysterious ways as I did not tell you the stock, I did not buy any and the FDA announced today instead of Thursday. Close but no cigar. Mela Sciences Inc did not get the go ahead some were expecting. The good news is that Barron’s got it spot on. The article said if they get the go ahead we might see a double. If they don’t the value could crash to at least half. The stock is down today about 54.67%. Good call.

Then I got an e-mail from the other side of the world from someone who noted that it was a bit late in the year to be working on my 2010 budget. Good catch Thomas. Obviously we are working on our 2011 Budget. Then I had a couple of folk who did get into CSCO. I chose to start a position as well and went directly to the equity versus the options we discussed yesterday.

In other pin action in the Salve Lucrum portfolio (and others) we added to our KO position which was looking really cheap today. (WE added at 62.99 a share). We started and added some VXX at 49.69 a share looking for the volatility play. Now the Euro took a hit today against the dollar and China's threatening interest rate hikes is playing havoc with all of our commodity plays so we bought more on the dip. We added DBA, JJG, and PPLT to most of the portfolios. The main portfolio is at 40% cash waiting for this correction to conclude.

How Low Can You Go?

As you all know I am not a chartist, but we have been looking at the DJIA chart and see this index coming to a very important support point at $10,980.  That is just about the 50 day moving average.  If it falls through that figure and we continue to see negative volume like we did today and on the 11^th, we could see the Dow drop to a level somewhere between the 50 day average and the 200 day average.  That would put the Dow around $10,700.  That would bring the S & P 500 to about $1,094.

Cute and Cuddily QE II

I have spoken at length about QE II or Quantatative Easing, but one of our readers sent me this link.  Please watch as the two fluffy charecters below give an incredible explanation of QE II.  It is about 6 minutes long but definitely worth the time.

So What Does A Billionaire Buy?

The SEC 13F-HR filing reports are coming out and that is where people like me can go though the delicate drawer of great men like Buffet, Soros, and Paulson. If you want to feel the silky shorts of these bad boys, feel free to do your own voyeuristic exploration by going to the SEC website and search your favorite billion to see where they are parking their goodies.

Type in the name or company name of the person you want to look at and look for the 13F-HR filing from the latest quarter. Now that will tell you what they own now. To compare to an earlier quarter, just go back 3 months and look for that 13F-HR.

Here are some highlights from Mr. Buffets holdings. Now these holding are held in joint accounts at Berkshire Hathaway Life Insurance Co. of Nebraska, BH Columbia Inc., Blue Chip Stamps, Buffett, Warren E., Columbia Insurance Co., Cornhusker Casualty Co. Cypress Insurance Company, Fechheimer Brothers Company, GEC Investment Managers, GEICO Corp., Government Employees Ins. Corp., Medical Protective Corp., National Fire & Marine, National Indemnity Co., National Liability & Fire Ins. Co., Nebraska Furniture Mart, OBH LLC., U.S. Investment Corp., Wesco Financial Corp., Wesco Financial Ins. Co., and Wesco Holdings Midwest, Inc.

The overall 48 billion dollar portfolio improved by 4.4% from the previous quarter.

The first thing I noticed was he took a new position in BK The Bank of New York Mellon Corporation, a financial services company, provides various products and services for institutions and individuals worldwide. The company's Asset Management segment offers a range of equity, fixed income, cash, and alternative/overlay products, as well as distributes investment management products. Its Wealth Management segment provides investment management, wealth and estate planning, and private banking solutions to high-net-worth individuals, families, endowments, and foundations and related entities. The company's Asset Servicing segment offers global custody and fund services, securities lending, global liquidity services, outsourcing, government securities clearance, collateral management, and credit-related services to corporate and public retirement funds, foundations and endowments, and global financial institutions. Its Issuer Services segment provides a range of products and services to fixed income and equity issuers, including corporate trust, depositary receipts, employee investment plan services, and shareowner services. The company's Clearing Services segment offers operational support; trading services; flexible technology; and various investment solutions, including managed accounts, mutual funds and cash management, practice management support, and service excellence to financial intermediaries, broker-dealers, independent registered investment advisors, and hedge fund managers. Its Treasury Services segment includes cash management solutions, trade finance services, international payment services, global markets, capital markets, and liquidity services. Additionally, The Bank of New York Mellon Corporation involves in leasing, corporate treasury, business exits, and corporate overhead businesses; and provides fund accounting and transfer agency services for asset managers and financial advisors. The company was founded in 1784 and is headquartered in New York, New York.

Now when Buffet takes a position, he does not muck around. He bought just hair under 2 million shares with an average cost of $26.10 a share. Today the stock is selling for $27.69. Now we don’t own the stock and have never kicked the tires on it but at face value, the forward looking PE ratio is just a little below 11, making it relatively cheap for the market but not for the financial sector. With target prices in the 32-33 range it has a decent safety of margin. Other than that I can’t really get excited about the stock. I hope he did his homework.

He left his KO position alone at 42 million shares.

Buffet really bumped his position in Comcast from 186,000 shares to over 12 million shares at an average cost of $16.41. The current share price is above 20 and this stock has much better fundamentals. CMCSA seems to be a sound company with manageable debt. With 2 billion shares outstanding, 12 million share is not much, but I was surprised to see buffet take a position in such a closely held company. The Robert’s family contol about 35% of the company through some class B preferred stock. I hope he did his homework.

Hey where did Home Depot go? It looks like Buffet pulled completely out of HD. He had 2.7 million shares. Interesting decision? Anyway you can go holding by holding and see what he is doing.

What is The President Up To Today?

After a difficult election season and a humbling trip to the G-20 meetings and taking a long hard look at his cabinets depth of knowldge and experience, The President decides to break out the books and get a better understanding of this thing called economics.

Salve Lucrum

15 November 2010 Let’s Get A Little Sideways

BAGAKOAA 15 November 2010 Let’s Get A Little Sideways

This week is supposed to be a reflective week for me as our industry trade show takes place in Las Vegas. Quite a few folk leave town creating a good opportunity to actually get work done. However, today I had the pleasure of doing my first pass of my budget for 2010,

And then to the dentist

With all of that, the market was going to have to be really bad for me to have a bad day. It was not all that bad. We did have a positive retail report followed by a very lack luster Empire State manufacturer report. This was set against a background of Ireland Debt questions. As we called it last night the VXX did drop 1.11%, but despite the promising retail number the retail ETF XRT did not rally.  It really did not do much of anything. So my advice from last night was either half good or half bad depending upon your view point. While the markets did not do much, there was not much volume either. Few shares were traded toady.

How Much Is That Doggie On The Website?

This week we will see the CPI, (Consumer Price Index). It is created the old fashion way with department of commerce pollsters walking the aisle of hundreds of stores to see how much stuff costs.

Two economists at MIT’s Sloan School of Management have come up with a project that tracks 1 billion items prices in 10 industrial nations in real time on line. It is really cool and you ought to go check it out, just click here . It shows Argentina with an annual inflation rate of 21% and the UK at a low rate of .5%. Ok if you are interested the US is shown to be at a 1.7% rate of inflation. Cool project.

Put Your Sunscreen On Before You Bet On This Stock

It is not too often you get teased into to making a speculative bet in Barron’s, but this week they suggested taking a flyer (Finance term for “Use Only Vegas Money) on a stock that has developed a new way of screening for Melanoma, one of the nastiest forms of cancer. On the 18th the verdict will be in. If approved, Barron’s is saying a double, if not its get knocked in the dirt for a long time. My bad, as I meant to mention this last night, but was enjoying dinner with a reader and a NEW READER, (hello Linda) and did not get it into my final post. The stock was up 13% on super heavy volume. I guess I was not the only one reading the report. One way to play this might be to look at the April call options

There is a lot of money betting on the 7-11 range. I would take a serious look at the 8.00 April call for under 2 bucks if you can get it.

Again this is a very speculative bet. The FDA does what ever the heck it does. I will try buying some 2.00 April 8.00 calls at the opening tomorrow and watch what the report says on Thursday.  (Sorry the stock was MELA. 

CISCO Kid Could Be A Friend of Mine

Hutch, one of our regular and most responsive readers asked me if I thought CSCO was a buy at this level. 19.95 today. While I am not adding any new positions at the moment because I do believe the rally is over, it does not stop me at looking for opportunities.

Cisco took a whack last week for two reasons, they cut their forward looking forecast and their margin contracted a bit (from 65.3% to 62.8%) That was followed by a few down grades. Even with several target price adjustments (from 28-30ish to 25-27ish) we have a great margin of safety in excess of 25%. Their debt is manageable. Management explained away the future earning deduction quite admirably by explaining that sales to state and local government was down, European business was disappointing, and cable TV box top sales were down. In that sector especially they admitted loosing ground to Motorola. (CEOs don’t normally do that in a conference call. They might acknowledge market share losses but not who they lost it to.) The explosion of cloud computing should help them maintain core router business growth even if they are loosing some of that to smaller competitors (Aruba and F 5). In reading more about the company and especially its Advanced technology segment which addresses network security, video conferencing and home networking, the company seems well positioned for future stability. Their management team is sound and Chambers the CEO has been at the helm for 15 years. I think that is a long time UNLESS his income is in line with shareholders interest and it is as he has a boat load (investment term for a lot) of shares and options.

So Hutch’s question was, “Would I pick up a few shares of CSCO at this level?" My answer would be yes and I will. I will get in below 20 and look for 23-24 by the end of Q 1 2011 and then reevaluate. If anybody else considers this, do your homework and keep an eye on Huawei Technologies out of China and Juniper who could change CSCOs game if they don’t pay attention. I will be out at $18.25.

And What Will Tomorrow Bring?

His guess is as good as mine.

Salve Lucrum

14 November 2010 The Week Ahead

BAGAKOAA 14 November 2010 The Week Ahead

It’s a busy week this week and it has nothing to do with my Dentist appoint or several dinners we have planned. There is a lot going on with the economic calendar and earnings this week. Overall it has been a good earnings season, now that we are about half way through it. More than 77% of the S & P 500 have beat earnings estimates, yet the average Price to Earnings ratio remains around 15, lower than its 10 years average of 18.5.

First off on Monday we have our month to month analysis of retail sales. The estimates are in the mid range with a gain of .7%. (Including auto sales). We are a bit more optimistic and are looking for .9%.

Monday we will also see the region manufacturing report known as the Empire State Manufacturer report. This is an indexed number and the estimate is almost flat at 15. As a reference, it was a minus 24 in March of 09. We again are thinking we will see a beat of the estimate at 16.2.

And to round things off, Monday will also see business inventories. This data point is a ratio of inventory to sales. It is expected that we will see .9% indication we are selling more than what we are putting on the shelves of businesses in America. As a comparison, in January 2009 when the consumer was saving, paying down debt, and not spending, this ratio was 1.48. Our guess is a little better than expected to .8%.

There is now way sure way of playing these guesses. First off they are guesses from a guy who has no credentials to make guesses in the first place. However putting that aside, if you support the guesses, the news is fairly positive which means we could see a drop in the VIX, The CBOE volatility index that climbed a bit last week from 14 to 20. We could see the number to drop again if the news is positive. We might also see a bump in the retail sector if retail sales and the inventory ratio drops. Look for good value retail stocks or a broad based retail TEF like XRT. Do your homework as there are many Retail based ETFs.

Tuesday we have the PPI. That’s right the Producer Price Index. It is the average price of a basket of capital and consumer goods at the producer’s level. The estimate is a double in one month. That is right, the expectation is for prices to go from .4% to .8%. I can’t see any reason why this is a bad call. I actually could be higher. I would take it to the high end of the estimate range and say prices are going up 1%. If that happens it is difficult to say how the market might react. We will have those that think inflation is going to explode and that is bad. You will also have people say the fear of deflation is now gone. That would be a good thing. Either way, we could see a goosey (financial term for volatile) market after the announcement. (Hint:play VXX and GLD).

Later Tuesday we will see Industrial Production and capacity utilization. Both should improve marginally and have no significant impact to the market.

Also look for the Housing market index which should also show a measured (be it small) improvement.

Wednesday we will see the mortgage applications numbers and we should see a slight improvement in that number.

Wednesday will also reveal the CPI. The Consumer Price Index. Indications are a slight move upwards. The guess is the fully weighted index will move from .1% to .4%. That would put us on an annual rate of inflation of 4.8%. I can see a .2% or even .3%. Adjusted for food and energy, they are looking at .1% making a 1.2% inflation rate.

Also on Wednesday look for housing starts to disappoint. The guesses are at 590,000 units down from 610,000. I am guessing 575,000 and a negative reaction from the market.

To finish the week, we will have the jobless claims report on Thursday. Last week we had a nice surprise as this came down to 435,000. The fortune tellers are saying an increase to 445,000. I think we will stay in the 435,000 range and possibly improve.

Salve Lucrum

13 November 2010 First Time In the Air

BAGAKOAA 13 November 2010 First Time In the Air


This is a first as I am writing today’s post from my Mac Air Notebook.  I like it, but the screen emulation seems to be a bit small.  So that means I will miss more of my grammatical and spelling screw-ups than usual, if possible.  Let see how it goes.


I had an early wake up call from our 16 year old poodle, but it allowed me to get to breakfast early and start tearing apart this week’s Barron’s.  I have been critical of the publication in the past several weeks.  This week makes up for it.  Please pick up a copy this week as it worth the $5.00 at the news stands.


Here are a few of the highlights.  The cover story is all about the explosive growth of ETFs and ETNs.  Almost 90 Billion dollars flowed into TEFs in the first 10 months of this year.  Andrew Bary walks us through the advantages and pit falls of using ETFs to manage different asset categories.  This is a very thorough and insightful article about a very helpful investment device.  


Alan Abelson does a good job explaining Chinas recent application of a wet blanket to the 5-week rally.  He also explains the Eurozone sovereign debt issues and how it played a role in slowing things down this week.  No one is actually declaring an end to the two-month rally we called here on 15 September.  In fact I got the impression that there was a bullish undertone in most of the articles, which puts my “Its Over” post as an outlier opinion.  Most of the bullish comments were tempered with caveats about Euro Sovereign debt issues or inflation concerns and asset bubble popping or commodity crashes.  Other than that they were fairly bullish viewpoints.


The best article of all, and I guarantee you worth the cover price, is the Lawrence Strauss Article, actually an interview, with John Lynch, Chief Equity Strategist at Wells Fargo.  Here is what I would suggest you do, pick up a copy of the article or get it on line and have Investopedia.com fired up on your browser.  Follow the article as Lynch describes his strategies and look up any investment terms you do not grasp.  I get accused all the time of talking well above our readers’ investment IQ.  This article takes it up a notch or two, but it is not investment speak for the sake of investment speak.  His strategies and explanations are spot on for the current investment climate.  So if you want to get a valuable insight into what do now by someone who has a good track record and manages billions, read the article a look up the tougher terms.


In summary of this piece, Lynch is still relatively bullish on stocks, an S & P 500 of1200-1225 seems to be the high end of this rally, he has shifted from a pure Graham Dodd valuist to a valuist and technical chart reader, he likes what Bernanke has done but is worried that he is drawing too much from lagging indicators and not looking forward enough, he thinks forward looking statements by many of the CEOs are a bit too aggressive for 2011, he has taken profits and is focusing on his strongest performer (Hey we did that yesterday), and he likes tech, energy, industrials, materials.  (This Mac Air makes it really really easy to make long run on sentences.)

We have another new reader to the Blog, My Aunt Kay has asked to be added.  That makes 42 and counting.  Welcome aboard Aunt Kay.  I'll try and behave.

The Weather Started Getting Rough

I might not be the skipper or the professor, but I never leave home without my Barron's

I'll give you some insight into the seek ahead tonight or tommorow.

Salve Lucrum

12 November 2010 It’s Over

BAGAKOAA;

12 November 2010 It’s Over

So I turn my back,
Turn my collar to the wind
Move along in silence
Trying not to think at all
I set my feet before me
To walk the silent street before me
Now it's over.

It was February 1973 when Elvis recorded the old Jimmie Rodgers Song, “It’s Over” on the Hawaii Satellite Concert. But this was really how I felt today. Ahead of Vector Vest and IBD I am calling the rally over. It started on 9 September and we had a good run. We mentioned last night if we had a downward day with even average volume we would take profits. We did. We took about 40 to 50 % off the table in nearly all portfolios. It was tempting to get in to gold and other commodity ETFs and ETNs, but the fact that China is now bumping their interest rates, even commodity buyers were goosey today and could be for the near future. So we are parking our profits in cash for few days.

I don’t understand the downturn at the moment, but believe it is happening and could continue for a while. If not down definitely sideways. That means I will refresh my value investing skills by reviewing Active Value Investing: Making Money in Range-Bound Markets by Vitaliy N. Katsenelson. This could be range bound market for the balance of the year.

Now what that means to you and I is to take the profits we just enjoyed, take a serious look at your holdings and ask yourself, “Self, do I remember why I bought this stock in the first place?” If you know the answer, than verify all those reasons are still there. Go back and read or re-read their last quarterly financials. Are their balance sheets better or worse? How is their cash flow? What are they doing to improve or protect shareholder’s yield? (Paying down debt, issuing dividends, buying back shares or making strategic acquisitions) If not then consider taking all the profit off the table and move on. If so, look for the dips in the range bound market to get those stocks at attractive values.

Some of you are considered about inflation. It is coming, but no one knows for sure when. Uncle Ben is doing his best to avoid deflation so we don’t replicate the lost decade of Japan. Some say he is over doing it. Regardless, he is doing QE II to lower the value of the dollar. That is the operational definition of inflation.

If you can’t find the value in you key stocks, look for inflation plays in commodities. We mentioned ours JJG, DBA, PPLT, as well as our gold ETF GLD.

307 posts and now 41 Readers

We would like to say a hello to our newest reader.  Michael will be our 41st person on the Salve Lucrum Blog.  Hope you enjoy and that your carefully read the disclaimer on the home page.

Sacremento Gets the Best of The Terminator

Two years ago I had the pleasure of bing involved in a political group called The New Majority.  We had the opportuntiy of working directly with the Governor of California on a few projects and actually had the opportuntiy to go to several events where he was speaking.  Governor Arnold Schwarzenegger was a very fit healthy looking guy.  During the last year he has had some tough battles with the legislature in Sacremento.  A recent picture shows the results of the budget battle.

I think it appropriate if his last words on the steps of the capital building were:

I won't Be Back!

Salve Lucrum and have a great weekend.