Wednesday, December 22, 2010

22 December 2010 Going offline for a while


We are going offline for a while as our place in California got clobbered by the recent storms.  Thank you for all of you who have called and sent e-mails.  We are fine but have a huge mess to clean up.  Here is a screen shot from ABC News and the link to the actual video.  Our home is the one with the Cadillac SUV in the driveway.

Devin made a cute comment a while ago.  She said and I quote:  "I always thought our house would burn down before it flooded."

Salve Lucrum

Tuesday, December 21, 2010

21 December 2010 (Everybodys Gone Away)


21 December 2010 (Everybodys Gone Away)

If it sounds familiar, you’re going back to 1973. An artist named Danny O’Keefe had a hit with a song called Good Time Charlie’s Got The Blues. It was covered by a bunch a folk, including a good size hot for Jackson Brown. I discovered it when Elvis covered it in 1974. It was almost biographical for Elvis, especially the stanza, “You know my heart keeps telling me, you’re not a kid at 33. You play around you loose your wife. You play too long you loose your life.”

While the market seems to be squeezing some more upward momentum, with the S & P 500 and the DOW just above the resistance points we mentioned last night, many of our core holdings are doing quite well. There is quite a bit of carnage on our options page. It’s UGLY. (A financial term for loosing our ass.) However most of these are 3-4 month calls so all the read ink is not too scary. If I am brave later I will download a copy of the portfolio with all the red ink. The point is, with little volume (Everybodys Gone Away.) it is hard to see action in the options market. All it takes is one person to clean up a position and your call is down 40%. And that 40% hangs there until someone else discovers the value. (It reminds me of the real estate market in California from 2000-2007.)

Have you ever heard of a melt up? That is what they are calling the market over the last few days. The market did close about the 11,500 and 1,250 resistance numbers. That was after having a nice run up and a little pull back in the last 30 minutes. Volume was non-existent as me and about 9 other people were trying to trade.

We look forward to tomorrow as FINL, Finish Line did not disappoint and had some nice earnings and positive forward looking statements. That should perk up the call options we bought on Monday. All we need is few traders on the stock. With the numbers for Nike being lackluster, there is a good chance FINL will get some exposure tomorrow.

One more time, don’t let this “melt up” catch you buy surprise. Check your stocks take some profit and be sure your stops and stop limits are in place. Make no doubt about it we are in an over bought situation. There will be a correction, but trying to guess when is a fools game.

"You mean you got NOBODY at the SEC that can tell me when the correction is going to happen?"

Salve Lucrum

Monday, December 20, 2010

20 December 2010 I might keep this one another 30 years.

BAGAKOAA; 20 December 2010 I might keep this one another 30 years.

Devin and I celebrated 31 years of marriage today. My buddy Ben of 35 years+ (and a reader) reminded me this morning with a text. I had remembered but thank you Ben and Butch and Deb for the kind notes today.

I was at the wheel about ten minutes after the market opened. It was my intention to be there at the opening, but miniature Italian Greyhounds and Applehead Chihuahuas do not like doing their business in the snow. Fortunately we did not miss much at the opening, during the day or at the close. Volume was scary light today. There were some survey’s and anecdotal reports about healthy holiday shopping and that kept a relatively positive mood. The most interesting thing to watch today was how the S & P 500 bounced off the 1250 number. It closed a couple of points off that level. The reason it is interesting is because there are some important resistance numbers to watch. Back here in the blog in late September we pointed out the 1,140 resistance number and said if it breaks out of that we could see 1,200. Well the next resistance point is 1250. If we break out of that we could see 1,325 as the next barrier. I am thinking we will see 1,275ish then a correction. 1,275ish will make for an average P\E ratio of 23+. Way to high to be sustained. As you know we don’t pay a lot of attention to the DOW number, but they are seeing resistance at the 11,500 level.

Pin Action Today

We mentioned the market was quiet but we did move a couple of pins around. We did catch those calls on FINL Finish Lines. They were May 20 dollar calls at 1.50 each. We also added to our MDR McDermitt position as well as our ACN Accenture positions. We closed out of a sizeable call for INTC Intel. We had been accumulating these since last June and we are 30 days out and I just don’t see us making money on the calls. It was a 39% loss, but after doing a quick forensic, we would have done it again. We also closed out of a January call position on ACOM It was a 32% loss. In looking back at the original position in the end of November, it was not my brightest move. We initiated a speculative call opting for March 2.50 positions in BWEN Broadwind Energy, Inc. provides products and services to the wind energy industry primarily in the United States. Its Towers segment manufactures wind towers designed for 2 megawatt and larger wind turbines. My thinking on this is that it is one of the few buy out rumors that have not escalated in price in the last few weeks. The target price is 4.00 a share the stock is trading at about 2.50 and the calls are .25. This is Vegas Money baby. The rumored suitor could be GE. They would be lunch money for them and the value could break five a share making the call worth $2.75. Of course they could be bought out on March 20th. DO YOUR HOMEWORK. What will happen? The answer my friend is blowing in the wind.

Salve Lucrum

Sunday, December 19, 2010

19 December 2010 Don’t Leave home Without It

BAGAKOAA; 19 December 2010 Don’t Leave home Without It

We made it from Dove Canyon to Utah in about 11 hours, a normal run. I was not going to leave before my Barron’s showed up, but that was not a worry as we did not get on the road till about 8:30 am, one of our latest departures ever.

My plan today was to devour the Barron’s and enjoy some football. Instead I get to spend a wonderful day with my son shopping for Mom. Yes I was doing my environmental scanning and saw quite a few people, but not crazy busy. There were a lot of fold without bags. We did notice some commons sizes missing off the racks.

Jack and I managed to get our shopping done and got home in time to catch the end of the first half of the Oakland Denver game. Then we went mouse hunting. We had a mouse play havoc with our pantry while we were gone.

So tonight about 8:00 we got to look at our magazine. Again this is a great article and since this will probably be a quiet week it is a good issue for you run out and pick up. Besides some bullish articles about quite a few companies, there are some interesting articles about the year ahead. One of the best is Kopi Tan’s look at 2011. As usually he has done a well researched lengthy study of dozens of strategists and fund managers. All but one were fairly bullish with S & P 500 expectations rising from 7-17%. The average is 10%. My gues will be published here some day this week, but I am probably going to be slightly more bullish.

Now were are at the tail end, the dredges if you will of earnings season. Alcoa kicks off a new season on January 10. We hope you are doing some house cleaning as we suggested. We are in research mode so if you want us to kick the tires on ANY of your holdings, drop me a note at

Anyway I suggest you get this week’s Barron’s and give it a read. Here are a couple of heads up and maybe a couple of plays for the week ahead.

Let’s look at some earnings first. PAYX Paychex, Inc., together with its subsidiaries, provides payroll, human resource, and benefits outsourcing solutions for small- to medium-sized businesses in the United States and Germany. Like ADP, they are good tell of the economic environment as it concerns employment. They are to report 35 cents a share on Monday and we feel it might be a bit better, but more importantly they might have some positive things to say about the employment situation.

Adobe reports on Monday and they are supposed to pull down 52 cents a share. We are thinking a near miss. The one to watch is JBL Jabil Circuit, Inc., together with its subsidiaries, provides electronic manufacturing services and solutions in the Americas, Europe, and Asia. We thinkest they will blow by the 55 cents consensus estimate. If I was not asleep at the wheel, we would have picked up some call options.

If your hungry for a decent earnings call, check out DRI Darden Restaurants, Inc., through its subsidiaries, engages in the ownership and operation of full-service restaurants primarily in the United States and Canada. The company operates restaurants primarily under Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, and Seasons 52 names. They are expected to hit 54 cents a share. (They should, but future commodities will squeeze margins.

Regarding your favorite, economic data, you are off the hook on Monday and Tuesday. There is NOTHING to report. To add to your euphoria, I want to give you a gift. Most of the economic data I use is from my digital subscriptions to Barron’s. Technically is the All Things Digital from Dow Jones. I just found out that the economic data called Econoday . Most of the content is free and even the subscription is reasonable. But I warn you it all about economics.

Getting back to Tuesday’s earnings, keep an eye on Finish Line and Nike. They should both beat analysts estimates. I am really liking FINL Their fundamentals are pretty. Same Store Sales for November were very good. Their multiple is 13 and change and when you back out the 4.67 a share in cash it is really cheap. If you like them long, do your homework. I am going to play it as a call option. I am going to try and catch a May 20 call for $1.50. If the report comes in strong as I think, we could see a double or at least 60% gain. Unless if the CEO talks it down.

In Closing, before heading out of town we made a couple of tweaks to The Salve Lucrum account. After doing some homework on AAPL, we are still seeing a lot of growth and added to our position. This was a long buy not an option. The Bristol Meyers bad news last week brought all of the Pharms down and we picked up more PFE Pfizer on the drop. Both of these are core holdings and we will look to add on drops. My target price for AAPL is 440 and my target price for PFE is 22. Those are 12-24 month prices.

Salve Lucrum

Friday, December 17, 2010

17 December 2010 When the moon is in the 7th House

BAGAKOAA; 17 December 2010 When the moon is in the 7th House

Now the song, from the musical Hair, was written by three guys you have never heard of, but what the heck does it mean. Someone told me that the markets are moving sideways because the Astrological signs are in regression. Heck I’m game as I even have started making sense of some of the technicals on stock charts.

So I looked at the astrological indicators for today and tomorrow and they are burgeoning with tension. (Their words not mine. Not sure I even know what that means. But I know someone- a reader who might explain.) The reason is simple. You see the Sun is in Sagittarius and Jupiter is aligned with Pisces (I’ll bet big bucks you were expecting me to say Mars.) Now what is cool is our star, (I assume that means our sun) is making it annual union with the Galactic Center today and tomorrow. So there you have it the market was flat AGAIN.

Ironically or perhaps not, today was a quadruple witching day. (No I am not talking about four rude ladies who would not let me out of the parking spot in front of Borders Books. Interesting, I actually saw a person today in Border’s with a Kindle and I actually think they were down loading books they liked to their Kindle. Note to self, BUY MORE AMZN. But I digress.) Triple witching for those that are not familiar with the term is a day when contracts for stock index options, stock index futures, and stock options all happen on the same day. In order for it to be a quadruple witching day, you have all three of those occurrences happen as well as single stock futures expire. The last hour of trading (which I missed today as Devin Jack and I were celebrating making it through the pre Christmas dramas and we are just about ready to jump in the big F-250 with the 5 dogs and head our place in Utah for the Holidays. We enjoyed a great lunch at my favorites place Hanna’s.) is typically very volatile as traders have to close out positions and take losses or lock in gains. Anyway I missed the action although from what I am reading there was not that much action.

So it was ANOTHER sideways day.

Despite the triple witching we got a new two year high for the S & P 500. (Remember my post about too many people in the pool.) Oracle and RIMM had great earnings report and helped the bulk of the tech sector. Volume in the market was heavier than the slow days we have been having, but that has to be related to the quadruple witching more than investor enthusiasm. The debt bugaboo in Europe prettied up the dollar but oil and gold both did well today. My big investment in the VXX, a volatility play is down about 18% as people are feeling pretty good about the market. I will be adding to the VXX position probably next week. Next week, pre-Christmas is typically a slow week. It is a good time to look at your core holdings. Ask yourself a few questions. Why did I buy this stock? Are those reasons still valid? What did their last earnings report say about why I should keep the stock, take a profit, or add to the position? (No excuses, Boys and Girls, here is the link to the SEC search page where you can find ALL of their filings:

It is a great time to review all the press releases for the last couple of months for each of your holdings. Just go to and type in the ticker and you will see very relevant article about your company going back months. Each one will have link so you are a click away for all you need to know.

Then to get the nitty gritty of what is going on in a company, look up where they are headquartered, go to Google, find out the name of the local newspaper where the company is HQ’d, go to the newspaper website, and search for local news about the company. Amazingly enough, there are juicy little tidbits about the company, the executives, and the unions that never get picked up by the financial press. I remember once finding out that the CEO of a very recognizable firm was also the Chairman of a local bank that did not meet the FDIC stress test and was near being closed. Despite some strong financials and interesting growth initiatives, we chose not to get in the stock. I just check it and from 18 months ago (aprox) the stock is up 7%. No dividends to calculate so the return would have been about 4.5% and they were recently down graded. Good call.

If you have done all of that, enjoy your walk around the malls or your drive to grandmothers house, but keep alert to the stock ideas you see everyday. Are there a line of kids hanging out at Gamestop GME? What video Games and gaming systems are they buying? Did it take you way too long to get your delicious sandwich at Panera Bread PNRA? Are all of your friends wearing the new cutaway Uggs (owned by) DECK? What retailer seems to have the most boxes under the trees of homes you visited? Macy’s M, Target TGT, Wal-Mart, WMT. All around you everyday there are great opportunities to find a new play in the game. Good luck and do your homework.

If you are short of ideas, go back to On the home page, you will see a gold mine of companies that might have some nice growth and good value. There at the top left you will see the top gainers. The beauty of is all the information is right there in front of you. You can quickly glean the basic fundamentals of the stock and decide how much more homework you want to do. Here is one quick example.

The top of the list today is ITMN. Go ahead and click on it so you can play along. The company is Intermune Inc. Scroll down and you will see that it is a biotech company, focuses on developing and commercializing therapies in pulmonology and hepatology primarily in the United States and Europe. You can read on for more info. Does your portfolio need a bio play? If so let’s go back up to the fundamentals. It has a 2 Billion market cap which is decent size. It has had negative earning so it has no P\E ratio. (Not unusual for a bio start up) With the 144% jump today its historical price performance looks real good. You’d have to tear apart the SEC filings to see what is going on with this company. I poked around a couple of press releases just now and the pop was the result of the Committee for Medicinal Products for Human Use approving a drug that treats idiopathic pulmonary fibrosis (IPF). The FDA did not pass the drug earlier this year and requested more testing. This approval is a green light for sales and distribution in Europe. The FDA will probably follow in a year or so. If you’re willing to wait another year or two as the drug won’t hit the street till 2012, you could see the stock head up to recent analysts expectations of 55 a share. Or the FDA could say no again and back at 15 a share. Too speculative for my blood and we don’t need a spec bio in the portfolio at the moment. It took about 5 minutes to that homework to decide to move on. You can do this to.

On the road again.

As I mentioned, tommorow at O dark Thirty we leave for the beauty and serenity of Draper Utah. My daughter and her beau will be joining us for Christmas. Then we have some friends coming up after the big day. We will also be joined by some other good friends who have a place up there. That would be Dennis and Jerene, readers of the blog so I wanted to say Hi and congratulations to Jerene who is retiring next week after, I don’t know exactly how long she has worked for US Customs. I think she started during the Adams Administration. Congrats to you Jerene and try not to spend too much time with Dennis, he will drive you batty. Love them both.

Slave Lucrum

Thursday, December 16, 2010

16 December 2010 Diversity can be Diverse


16 December 2010 Diversity can be Diverse

I can’t believe that it is only a little more than week until Christmas. That is until I walk in the door at the end of the day and see the woman who manages to pull off the Holiday Miracle with grace and poise. There are boxes everywhere, packages every- where, wrapping papers in very corner of every room, enough scissors around the house to make Edward Scissorhand jealous. And some how it will all come together and turn out fabulous, assuming I stay out of the way. Thank you Dear.

I am telling you about holiday goings on because their ain’t a whole heck of a lot to talk about in the market. We got our Inflation numbers on Wednesday and I was wrong, there was no increase, there was actually a decrease and within minutes the talking heads on the Finance channels were floating the D word. Deflation. Personally, I think some people just look for the bad in every situation. If we, the optimists of the world were the only ones in the world allowed to trade, we would never have a downward correction. It would be the epitome of the bigger fool theory. I could pimp my stock, you would buy it for me tell how great it is, and I would buy it back at a higher price then convince you how great it is, and then sell it back to you at a higher price. Anyway, there were enough people who either knew or were comfortable with the downward direction of inflation that the market just yawned.

We projected an improvement to Industrial Production and we missed that one too. It did what it was expected to do so the market just yawned.

Today, new housing numbers were released and it was a schosch (Financial term for teeny tiny bit more) more than expected. When you break down the numbers, single family homes did much better than expected while multi family units dragged the number down. We were hoping for a drop in the number to clean out the inventory of homes so at face value this did what it was expected to do and, the market just yawned. (Worth noting is the fact that finished home was lower than new starts for the first time in several months. That means that contractors will now have a place to work and it should help the employment figure to come. This is my interpretation of the numbers but I did hear a similar comment on Bloomberg today.)

The little bit of pin action we had in the Salve Lucrum Portfolio included some nice dividends (got Bob’s attention) on BOH, BMI, KO and MCD. Interesting note, since 1960 60% of the value returned in equities were the result of dividends and the reinvestment of those dividends. Food for thought.

We started a new call position on GE. It’s a March 2011 18.00 call position. We have been connecting the dots of some fairly promising press releases and feel that the Jan 17 earnings call should be good. Well good enough to make this call profitable. We got in at 65 cents a call and we are looking for a 30% upside by earning release.

We mentioned JOYG Joy Global here last week and suggested looking at some 90-120 day calls in the 80.00 ball park. We hope you did your homework and agreed. We picked up an April 90 dollar call at $3.65 each and we were rewarded yesterday when we cashed out at $4.80 each a nice 31% gain before fees.

We did sell out of a AAPL put which we bought to cover our long position, but when the put went down 8% we got out. AAPL seems to be doing everything right at the moment, so my downside concern was short lived.

And on December 1, we pointed out some $40 March calls for CAH Cardinal Health. We got in at .85 a call and we got out today at lunch at $1.35 a nice 53% gain.

Diverse Diversity

If you are a Cramer aficionado you know he plays a little segment once a week called, “Am I diversified?” It is an interesting segment, and it is based upon a couple of chapters in a couple of his books. In essence he is teaching us that in order not to be come victim of one good or service or product category we should evenly disperse our holdings across about 5 distinct categories. He used to use the acronym BOATS. Banking, Oil, Aerospace, Tech, and Speculative. Each category should hold about 20% of the portfolio. If you are talking about a portfolio in the $10,000-50,000 range, that is extremely good advice. The categories do get a bit blurred. Aerospace might also include large industrials. Tech might include internet stocks. You get the point.

We would make an argument that if your experience and resources confine you to that model, and if you use true value metrics like low P\E ratio, a good sustainable dividend, good cash flow, low or non-existent long term debt, stock buy backs, and strategic acquisitions, that is an equation for probable success.

However if you have the resources and the experience you can diversify by having 20% of your portfolio in a portfolio as described, 20% in commodities, 20% in bonds, 20% in options, and 20% in Forex (International Currency Exchange).

A couple of people have asked how we get so crazy on options and still espouse a value driven portfolio. Again, it is my definition of diversification. Our core portfolio is made up of great value/growth stocks ie KO Coca-Cola, AMZN Amazon, CVX Chevron, AAPL Apple Inc., MCD McDonald’s, WM Waste Management, IBM, FLS Flowserve, and MSFT Microsoft. Knowing that these are the workhorse of our portfolio, we use Katenelson’s ideas to actively manage those holdings. In essence that means we look for buying opportunities, but realize there are times to take some profit off the table.(Sorry, FINVIZ.COM is down for some reason so we cannot provide links)

We have several bonds currently enjoying a nice profit from where we bought them and throwing an average of 7-9% yield based upon today’s evaluation.

We currently have about 7% in put and call options. Ironically that 7% is controlling a portfolio a lot bigger than the entire SL Portfolio.

We have commodities that are about 18% of the overall package. We DO NOT TRADE FOREX. It scares me and I am way to dense to figure it out. So the balance of the portfolio (about 15%) is in a cash type account that allows us to get in and out of opportunities as we see them.

So that is what we mean by diversified.  It really is simple.  All you have to understand is the details of the chart that my buddy "The Pirate"  Preston James put together and I use here without permissions. 

Salve Lucrum

Tuesday, December 14, 2010

14 December 2010 Me and Vinko


14 December 2010 Me and Vinko

At 6:30 am this morning I was feeling like Vinko Bogotaj. We know you know who this guy is. Raise a hands of everyone who knows Vinko. No one? Ok you remember the ABC Wide World of Sports opening theme and they show that poor skier who falls on the 90 meter jump as they say, “The Agony of Defeat.” Well that was my buddy from Slovania, Vinko. That’s how I was feeling this morning.

Yah, see last night I made the fatal mistake of telling my lovely wife Devin how darn good I was getting and picking up options and turning them for quick pop (financial term for big profits). She cautioned me, by saying you will jinx yourself by being so cocky. “Phisha”, I said (even if I did not know how to spell it.)

Well we told you all about the brilliant idea of buying some March 45 dollar calls for BBY Best Buy. And I quote:

“Tuesday, we got BBY Bestbuy. The street number is 61 cents a share. BBY is such a bell weather for electronics and retail that if they hit the guess, it will bring the market down, if they miss, they will bring the market down, if the just barely beat, no impact on the market, if they blow away the 61 cents it could be a nice bump for the market. Look for a really nice beat. We are thinking 69 cents a share. It could add another half a point to the market. That would be nice. (We are seriously looking at a March 45 dollar call for 1.40 a contract. DO YOUR HOME WORK. If they miss the earnings the call will be worth about 70 cents.)”

Ironically they missed and we still picked up a bit in the market.

They reported 54 cents a share. Ouch!  That was where I could feel me slipping out of the grooves on the 90 meter jump. BUT IT GOT WORSE.
I am so smart that I know the 16 point drop in the stock price would not hold so I jumped back in and bought some March options at 35 dollars. I figured if I could catch the bottom of the fall with an option I could balance my losses on the initial call option. By 6:34 am, I was feeling pretty smug about my screw up. Then I went to my positions page and saw the stock had recovered about 2% and I know I was making money on the new option. BUT I WASN’T, that option was down 23%. So my first call option was down 99.75% and my new one was down 23%. There I was was sliding toward the end of the 90 meter jump. I quickly went back in the positions page and realized I had bought a PUT option, not a call options. (Remember a put is a bet the stock will fall.) I quickly dumped the put, and picked up the 36 dollar March call. I could see the padding along the 90 meter jump heading towards me. All I could do now was to wait for the music to stop playing and the credits to keep rolling.

By lunch, my 45 dollar call had recovered to a 77% loss and my 36 dollar call was now 166% up and it covered my loss on the initial call and my short little 3 minute mistake with the put option. Darn I’m Good.

Tonight I did a little forensic study. If you remember about a year ago we held BBY long and we took a 14% loss on the stock. The financials were sound and Circuit City was OOB (Out of Business) and we were feeling that BBY had a nice holiday of electronic sales to look forward to. The did, but they chose to take on Uncle Wally in a price war and lost. Their margins ended up in the toilette despite and decent top line sales figure. This go around (last quarter) they decided not to drop their prices. Their respectable margins stayed in place, BUT they lost top lines sales (1.1%) to WMT and TGT Target. TGT and WMT have reported brisk sales in large format TVs and notebook and tablet computers. As a result, their earnings were off. That 36 dollar call looks good enough to hold on to for while.

Caution Book Review Ahead.

If you are a regular reader, you know one of my faves is “Active Value Investing: Making Money in Range-Bound Markets” by Vitaliy N. Katsenelson. You can imagine my excitement, well ok I was not that excited, when I heard he had a new book out it is called “The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere” (Little Books. Big Profits). We downloaded it on the Kindle last night and started taking it apart. It is a kinder gentler approach to Active Value Investing. That book, the original was a bit heady and written for the investment professional. In this text he puts a Jim Cramerish wax to it and it is a lot easier to digest. I have some copies coming so if any one wants one. Let me know and I’ll get you a copy. Merry Christmas. First come first serve.

Ok, I know you would rather have a wine review than a book review. About a week ago I brought a bottle of 2003 Viña Almaviva S.A. Almaviva (Chile, Central Valley, Maipo Valley, Puente Alto to dinner. It is a Cab, Carmenere, Cab Franc Blend. It was inky purple in the glass and it was good glass as we were enjoying ourselves at Hanna’s, my favorite place. The aromas were all over the place from florals to exotic spices to smoky. You could have just sat there and waited for it to open up. In the mouth, it had an earthy pleasant feel and taste. We got some currant and dried berries, chocolate and smoky meaty taste to it. It went well with both the pork and 14 ounce bone in rib eye. Life was good.

Happy Trails to You

It is almost that time of year again. We will be putting our 2011 prognostication out there in the next week or so. Our guess for this year as laid out in here January 4, 2010 was a 19% increase in the S & P 500. That would mean we would hit 1,335. Our starting point would be 1113. The S & P closed today at 1241, an 11.5% increase. Not half bad, but not half good. We expect we will close the year a little higher, perhaps touching 1,300. We will let you know what the guess is by the first of the year.
Salve Lucrum

Monday, December 13, 2010

13 December 2010 Got My Mojo Workin’


13 December 2010 Got My Mojo Workin’

This is one of my favorite Elvis Songs. Originally recorded in the mid fifties by one Ann Cole then covered by Muddy Water in 1956. Elvis was jamming with his new formed road band (Ronnie Tutt on drums, James Burton of Ricky Nelson fame on lead guitar, Glen Hardin on Piano, Jerry Sheff on Fender bass, and I believe Johnny Wilkins on rhythm guitar) when Felton Jarvis the album producer let the tapes spin and they caught a great jam session on this cute tune. They just don’t write lyrics like that anymore:

"She’s long and lean and lanky, as mean as she could be. Hands off of her, less you want to deal with me."

That’s what I’m talkin about. Great lyrics. Well we had our Mojo Working today as 13 of you know. (That’s how many of you went to the blog. I guess you could be just reading the e-mail and not going to the blog? I didn’t think of that till just now. Show of hands as to who just reads the blog via e-mail and does not actually go to the blog site. Ok that helps.) Not only did we call the market as being basically flat, we had a couple of nice take aways in some options.

HRL, Hormel announced a twofer (Financial term I just made up for a two for one stock split.) and the March 50 dollar call we told you about back on November 23rd had a nice 32% gain. We took it.

We took a loss on a February PUT for RBC, Regal-Beloit Corp as despite the negative guidance we told you about on 2 December the stock continued to go up. The clock was ticking as it was only about 45 days out and I could see this 40% loss becoming an 80% loss real quick so we got out.

Our decision was quickly rewarded as we saw out June CVX, Chevron 95 call escalate up 31.8% and we took the money and ran. Yes we probably left some money on the table, but that don’t bother me.

As we described in the blog last night we did pick up some shares of PFE, Pfiser at 17.15 a share. We are looking to chunk our way into a 2-3% overall position in the portfolio. We said we were going to look at the company a little closer, though I was sure Barron’s did a good job of analyzing the stock. Click Here to see the October 3rd 10 Q from PFE.

Here is what we liked in the fundamentals. Debt is manageable, they have a 4.19% yield although their payout ratio is 94% which means they are straining to pay that dividend. Their forward looking P/E ratio is 7.1. When you back out the 2.90 a share for free cash, the P\E goes to an absurd 3.2 a share. Ridiculously low. Most of the target prices are in the 20-22 range giving us a decent margin of safety. The price to book (just like it sounds the price of the stock divided by the book value of the company. The book value is determined by taking all of the company assets and subtracting all of its liabilities then dividing by the number of outstanding shares.) is 1.57 which is extremely low for a well known brand.

If you are into charts, this one seems to be getting prettier. See where the 50 dropped below the 100 which dropped below the 200 in the big circle. You see the stock start correcting downwards. Now you are seeing a reversal of sorts where the 50 crossed the 100 in the first little circle, then it crossed the 200 in the second little circle, and then the 100 passed the 200. They are all aligned in a bullish pattern green over red over blue. If you are into that crap. We are not but it killed a minute or two.

 Overall I feel this is a well valued stock with a long term gradual growth pattern assumed. Most if not all of the bad news is priced into the stock. We will be an accumulator of this stock. Do your homework.

In other Salve Lucrum portfolio pin action, I am expecting PIR Pier One to report well later this week and ass such picked up some March 11 dollar calls at 1.12 each.

Same is said for Fedex so we got some April 105 dollar calls at $2.15 each. It is estimated that Fedex will carry one billion packages today, there busiest day of the year.

We added to our position in SDIX Strat Diagnostics at 1.85 each.

We bought some April 37 dollar call options in WM for $1.00 each. We own some of this long and like the value. They report next week I believe and feel it will be a good report. If they hit their numbers we might sell off a few of the calls and keep the rest to add to our position later.

And in researching one of our winner’s NAK Northern Dynasty Minerals we ran across another possible mineral play. AXU Alexo Resources. We picked up some April 7.50 calls for $1.60 a contract. This is just to take advantage of what I think will be another hot day in commodities tomorrow until we can do proper homework.

The rest of the week ahead.

Those that checked out the aniblog by Salvay and Loocrum seemed to really enjoy it. If you have not looked at it I encourage you to do so, especially with all of the news about China tapping the breaks in their economy.

Here is the link again.

So we took you up to Tuesday. On Wednesday we have the CPI, Consumer Price Index. Now if you are familiar with the components of CPI, you might know the story of Richard Nixon when he asked then Fed Chairman Arthur Burns to come up with another measurement of inflation called core inflation so that those things that were getting expensive like gas and food would not skew the inflation figure. After all who actually uses gas and food. The new measurement became the CPI and the Core CPI. Anyway the number will be out on Wednesday and the street number is .2% for the CPI and .1% for the Core CPI. At .2% that would give us an annual rate of inflation of 2.4%, well with in the feds range. We are thinking that we will see .25% CPI giving us an annual rate of 3%. That should eliminate any fear of DEFLATION.

Wednesday will also see the Industrials Production Number improve as well as factory utilization. We thinnest it might improve more than expected and it should be a nice little bump for the market.

Now Thursday we have the new housing start numbers. This one is tricky as we want it to be DOWN. That is right, DOWN. It may sound contrarian, but part of the real estate problem is the 10.5 month inventory in the US. We have to stop making new homes in order to clear out some of the inventory. Now new homes do drive durable goods (Think refrigerators, air conditioners, washer and dryers.), but until we can get the value of homes back up we will have a problem getting a true picture of the financial industries situation. So its kind of a loose loose.

As it relates to earnings Wednesday we will see JOYG Joy Global which engages in the manufacture and servicing of mining equipment for the extraction of coal, copper, iron ore, oil sands, and other minerals worldwide. In looking ahead and reading between the lines, we are liking what we are hearing enough to look for some 90-12 calls in the 80.00 range for JOYG. DO YOUR HOMEWORK.

Thursday look for some exciting news out of FEDEX, we talked about that earlier. Orcale, one of Cramer’s faves reports on Thursday as well. We also have Winnebago report and believe it or not they should have good numbers. All in all I am guessing this week we could squeeze out another 2% out of the market.

When one thinks of a Man with Mojo, Sean Connery comes to mind. Here he is on a day where he left his Mojo on another set:

Salve Lucrum

Sunday, December 12, 2010

12 December 2010 The Pool is Getting Crowded


12 December 2010 The Pool is Getting Crowded

We grew up in a suburb of Chicago called Niles. We had a community pool back then on Milwaukee Avenue near Kirk Street. It was one of those parks that during the muggy scorching days of July and August; you could fit 900 kids in if they all stood up. Only the idiots would get in and use the pool when it opened in May/June or when they closed it in September/October. The best time to enjoy the pool was when the idiots were there. You had the whole pool to yourself. You could dive off the 3 meter and 5 meter boards, do laps, and try and swim the length of the pool underwater while holding your breath. It was great.

So what does that have to do with the stock market? We just finished reading this week’s Barron’s Magazine. Great issue. There is a lot of talk about optimism and a strong finish for the year as well as a possible continuance of this rally (there word not mine, although I am getting close to agreeing) into 2011. This pool, the market, is starting feel a lot like the Niles Recreational Center Park Pool about mid August. There are so many people saying so many good things about the market, you got to start thinking the really smart folk might be getting ready to head to the parking lot.

Alan Abelson’s article “Everybody’s Bullish and That is Bearish” has a lot of merit. He uses some relative data from the AAII that indicates that 53% of investors were bullish, 22.6% were bearish, and the remaining 24.4% can’t decide what color shirt to wear. In another data point from Investor’s Intelligence report says that professional money managers are sharing similar sentiment. Another possible tell of things to come is the margin debt borrowing. That is how much money is out there needed to cover short positions. It is currently over 300 million. That has not happened since 2006. Every time the margin meter has hit 300 million we have seen a brief (3-5 weeks) increase in the market followed by sharp sell offs. In 2006 it was a 3.55% bump followed by a 22% sell off so people could cover their margined positions. Needless to say, watch your stops. If you are not showing a gain for 2010, you must be betting on some really strange stuff. Let’s protect those gains with some well guarded stops.

Also, do a quick review of your holdings and know what you have. Think out 12-36 months and thing of what sectors you are in and which are going to benefit from a gradual improvement in the economy. Expect a 2.5% to 3.5% GDP growth. Know what stocks you believe in and buy more on any impending adjustment. If you are not sure of a position, take the profit NOW, don’t try and guess the market. You will loose every time.

Barron’s and The Week Ahead

As we mentioned, there were some great articles in this week’s issue. Here are few highlights that might encourage to go grab a copy.

Andrew Barry did a very bullish piece on down trodden PFE Pfizer. In the article he acknowledges all of the bad news and problems of the once great pharm. He mentions the recent shuffle in the C Suite with Kindler stepping down and Read stepping up. (Normally we run when a CEO get’s swapped out. One of the better Cramer rules of “The Game”.) To offset some of the new drug pipeline problems and expiring patents, the company is bumping dividends and executing stock buyback programs.

Now this article in and of itself would not pique my interest so much, but when matched with Lawrence Strauss’s article called, “The Call of The Contrarian” which is an interview with phenom fund manager Robert Kleinschmidt of the Tocqueville Fund. (Click on the link and you can see the funds most recent 13F filing showing the funds holdings.) In the interview Kleinschmidt, tell how his unbeatable fund is easing into PFE and offers some great reasons why. After reading both articles, I am a believer. We will be doing due diligence one night this week and probably start a small position as a 3-10 year investment.

In another article Dimitira Defotis educates us about a could of MLP (Master Limited Partnerships), that might be a very lucrative diversification for most portfolios. The two MLP highlighted are PAA Plains All American Pipeline and WES Western Gas Partners. Now PAA has a significant ownership in one of our gas plays PNG. Because of our solid Nat Gas positions, we will probably not be playing with either of these MLP, but it was definitely wirth bring to your attention.

Jacqueline Doherty wrote a great piece about how Microsoft’s Kinnect device could be a long term (beyond 24 months) game changer for the company. We are long in a small postion in the stock and this make us thing we will be adding a few more shares. It is a good read. (Here is a teaser, imagine sitting in front of your computer and managing every mouse click and key stroke with a move of your hand or nod of your head?)

Gene Epstein does a great economic study in his article about the timing of the end of the recent recession and what a real bottom might look like. A great read. The entire magazine was loaded with really good stuff this week. Do your portfolio a favor and pick up a copy.

That brings us to the week ahead. I know this is not on the A list stuff you like in the blog, but this is a pretty busy week.

Tuesday will see the Producer Price Index and the street number is .7%. We thinkest they guesseth to loweth. We are thinking 1.0% and that should be good for the market. I know that sounds contrarian, but there is still some folk out there worried about DEFLATION. I’ll admit it is not as many as maybe month ago, but there is still some thinking it might be an issue. Eliminating that worry will be good for the market.

Tuesday we will also see the retails sales report for November. There is an expectation that the number will be down from 1.2% to .7%. Our guess is higher, but we are a little confused as to how The Commerce Department is treating on line sales. We know Cyber Monday was huge, but we do not know if it will be tallied in this figure. Assuming it is and we can see no reason why it would not, we think the retail number should come in closer to 1% giving us a 12% rate over last year.

Tuesday will see the official relase of the Feds Monetary Policy Notes. We can’t imagine anything new that they have not already told us so this should be a non new worthy issue. So Monday should be a quiet flat, maybe slightly up day, and Tuesday should be an up day. Perhaps a whole point on all indexes. The only thing that could put a whammy on that might be a screwy earnings report so let’s see what we have on Monday and Tuesday.

Monday we got NOBODY. Really I looked and of the 18 or so people reporting we do not know any of them.

Tuesday, we got BBY Bestbuy. The street number is 61 cents a share. BBY is such a bell weather for electronics and retail that if they hit the guess, it will bring the market down, if they miss, they will bring the market down, if the just barely beat, no impact on the market, if they blow away the 61 cents it could be a nice bump for the market. Look for a really nice beat. We are thinking 69 cents a share. It could add another half a point to the market. That would be nice. (We are seriously looking at a March 45 dollar call for 1.40 a contract. DO YOUR HOME WORK. If they miss the earnings the call will be worth about 70 cents.)

We will get to the balance of the week ahead tomorrow night. I want to catch the second half of the Phili Dallas Game. So we will leave you with a little education about inflation and China from our friends Salvay and Loocrum. Please click here.

Salve Lucrum

Friday, December 10, 2010

10 December 2010 “Will It Pass?”


10 December 2010 “Will It Pass?”

Of course not everyone cares or not if it passes. It won’t really impact that many people. Sure one or too people really really care and want it to pass right now, this very moment. It's going to hurt, they always do. Again it is going hurt some more than others. But it is important to know these actually hurt filthy dirty greedy rich people as well as the most needy of our society. It is important enough to see the status of the situation scrolling across the bottom of the Bloomberg screen on TV. Funny thing, when it passes and they almost always do, we won’t even give it another thought.

Oh sorry, I was not talking about the tax bill. I was talking about Treasury Secretary Guietner’s Kidney Stone. If you didn’t hear, he is in the hospital because of a kidney stone.

But seriously it was an average day in the market but still moving a bit up. The S & P 500 hit a 2 year high at $1,240. That could be good news as it is testing some high end resistance numbers.

We were a bit surprised that the international trade report from this morning did not get more attention. The negative trade balance was improved by about 7 billion dollars. That means we imported 7 billion less than the month before. That is a big positive surprise and the market did not react. To add to the total number it is worth noting that we exported 3.2 % more than before. Consumer sentiment came in stronger than expected. We were expecting 72 (actually we-me was expecting a more positive number than 72) and we got a 74. Good stuff. On the down side we did have a look into the government’s checkbook today and the deficit increased by another 20 billion dollars. (When you actually go to the report-CAUTION HUGE FILE BUT CLICK ON IT IF YOU WANT-you will see there were some timing issues regarding the release of data).

Ok you can read all of the economic details, elsewhere, but let’s take a look at the pin action in the Salve Lucrum portfolio. Remember, we said that if there is no upward inertia or down ward inertia its difficult to get the results for short term trades but especially with options. So we are happy to say that despite the market we had a couple of gainers to take off the table.

On Dec 2, we told you about some positive guidance on TSCO, Tractor Supply. Now you could have bought the stock long and you would be enjoying about a 7.2% unrealized gain assuming you did not sell. We chose to get some April 2011 call options at 3.00 a call. We sold them this morning at $4.20. You can get out the abacus and figure it out, or I can tell you it was a 40% realized gain. Is it a good stock? I still think so. Did I get out too early? Probably. Could I have squeezed out more? Maybe. But I do know I am drinking the 15 year old single malt tonight.

We have on several occasions mentioned MDR, McDermott. We bought into this stock in June and July. We have enjoyed a spinoff of their Nuclear division (BWC Babcock Wilcox) we currently enjoy a 44% gain in MDR and 9.9% in BWC. We still though there were some legs on the stock so we could have risked more capital at 20 bucks a share OR we could work the upside with some call options. We did just that. As we mentioned here we picked up some 15 dollar May calls for 4.23 a call. We sold them this morning for $5.20 a nice 22% realized gain. The stock is up 12% since the 24th. The big difference is we made the 22% with only 423 dollars per 100 shares, not $1,700.

Now there are some horror stories in the options market. This morning 6:32 am to be exact, we discovered some positive earnings guidance statements about ALE Allete. Without doing due diligence, we found some value in a May 2011 35 dollar call. We tried and successfully picked it up some at 2.40 a call. We were shocked to see the calls selling for 10 cents a call at the close of markets today. A 95.9% loss. Now this might be a fluke as there were only three contracts executed at that price. Or it might have been someone having to liquidate their portfolio, but it would have only generated 90 dollars, and they could have sold them for 2.00-2.40 at a market order price. We will know more tomorrow, but my point is you have to be able to open your portfolio and see a 95% drop and not soil your pants.

We did execute a couple of new positions today. We like the momentum and direction of CVX Chevron. Their 2.6 billion cap spending program for properties in Nigeria and Australia have some long term impact, but a short term bump as well. Like the MDR example we could tie up 95 dollars a share or we could pick up some June calls for 1.64 a contract. Think about that. You can control 100 shares of CVX worth 9500 dollars for 164 dollars. You will see a gain of the stock goes up and you get to participate in the dividends if you hold the options on their distribution day.

We also picked up options in PLL and STR as we mentioned last night.


A couple of days ago we mentioned my desperation to actually quote Bill Clinton. We hope you witnessed the rather historic moment when President Obama introduced former President Bill Clinton in the White House press room to gather support for the tax compromise bill. I will be the first to admit he did a great great job. He was charming and sincere and made it very clear that this compromise was the best deal for the moment and 2.2 million unemployed needed a deal at this moment. He did it without disparaging republicans or threatening political armament in the election two years from now. If President Obama uses this weapon of mass appeal more often, the republicans better watch out.

Position Open:  Driver To The Royal Family

We have had the pleasure of being guests in London on many occasions.  One thing you learn very quickly is the disciplined education that the "black cab" drivers go through before they are let loose on the streets of London.  For years they ride bikes and memorize EVERY single street and side street of the huge city.  One might assume that anyone trusted with the life of the Royal Family might have the same if not superior knowledge of the city.  If we can sit across the pond and watch the social unrest regarding a 150% increase in University tuition throughout Great Britain, one might also assume that the drivers of the Royal Family might be up to speed on such issues as well.  That is why we found it a bit surprising and might we say amusing to see the following picture:
Now might the driver be messin with Prince Charles or did he really not know he was in the vicinity of the area the students had been rioting for two days?  Got to love those Brits.

Salve Lucrum

Thursday, December 09, 2010

9 December 2010 The Score Today was 16 to 13


9 December 2010 The Score Today was 16 to 13

That would be up versus down on the market today. I was a little under the weather today so got to catch up on emails and reading. I am reading a book that I can not recommend called Applied Economics. We got it in an attempt to understand the mechanics of qualitative easing, but it did not meet my expectations. I will keep it in my library and use it instead of xanax next time I have insomnia.

Anyway it was a boring day in the market and I can honestly say we made no trades today. There was some profit taking but most people were sitting on the sideline even though we had a decent initial jobless claims report. I think the caution may have been attributable to Nancy Pelosi and 53 of her friends not supporting President Obama’s proposed compromise regarding the tax cuts. Some say she wants to step down kicking and screaming. I will miss her pleasant Formica smile.
Today the bulls must be running the streets of Pamplona and the Bears must be starting their long winter nap. We did learn that you can make money with calls when the market goes up and you can make money with puts when the market retreats. You can’t make money with options when the market don’t move. It’s kind a like a spinning roulette wheel with no ball.
Callin Out Around The World
Martha And The Vandella’s were lookin for a brand new beat, but we had a reader looking to diversify their portfolio by looking at some global ETFs. We were given permission to share our response to the list he provided (Thank You Robert). We used Reuters and Morningstar to do the homework and it was an interesting little assignment. As usually, do your homework. We might add there are some interesting emerging market opportunities in Africa and Eastern Europe as well. Enjoy the read.

EWJ – Japan

This the Japanese segment of the world equity index fund. The near 100% stock fund is loaded with mid to giant cap Japanese holdings. Their top ten is a whose whose of Japanese companies. Loaded with Automotives, electronics, and industrials, and a bank. To make a play on these, it is a play on the Japanese economy. Because of QE II and rumors of QE III, China has been selling some of our debt and buying Japanese debt. The falling Yen could make their exports more attractive in a global market. China a few other Central banks seem to buying Japanese debt (Sovereign and Corporate) probably in an effort to make a currency play, but a return on the debt.

The ETF itself is trading in a narrow range of 9-11 for the last couple of years and is only yielding 1.5%. Not real exciting. The New Democratic party which took over in August 09 has some interesting stimulus ideas in place like grants for green energy development and aid to recent grads and making nice with a few of their Asian neighbors, but with a little luck you could see a 11-12 NAV next year. My humble opinion of course.

EWY - Korea

In contrast to the EWJ this is a volatile ETF that has ranged from 45-57 over the last 12 months. In looking at the top holdings, it is a big diversification compared to EWJ. Returns seem a little cloudy because of the WON dollar relationship. When the dollar drops against the won the return will go up. S Korea is the 4th largest economy in Asia and 60% of its GDP is exports. (IT, industrials, financials, and materials) from what I read S Korea is going through some serious deregulation which should create a healthier financial sector and economy. The SKOR etf is a little more diversified so you might take a look at it. Overall I kinda like what I saw in EWY.

EWA - Australia

This is a great multi country play as Australia’s exposure to China and other Asian countries make this ETF geographically diversified despite it being Australia specific. What I don’t like about the ETF is its sizable holdings in Rio Tinto, BHP, and Woodside Petroleum and their exposure to commodity volatility swings. (I am guessing we will see most commodities go up next year so this might not be a bad thing.) The Australian economy is white hot because of its exposure to India and China. Inflation could be a concern, but it appears as though their banking industry is pretty regulated and secure. Be careful of the new taxes in the mining industry, Australia’s trade relations with China, and the crazy hot Aussie dollar as that could kill exports. The NAV trades in a narrow range of 22-25 but has a decent yield of 3.5%.

RSX – Russia

This fund is a mad hatter’s crazy ass ride. Up 74% one year down 138% the next. Think oil and gas and gas and oil. If you think those commodities are going to rise in 2011 (I do) then this will probably be a good bet. Even if we get a bump in those commodities, corruption in the govern and in the board room could make a good year bad. Because of the corruption and poor financial reporting, even the Bloomberg’s and Reuter’s cannot comfortably judge what will be. I would keep this diversifications to a 5-10% holding in this emerging market play and even that should be Vegas monies.
EWZ – Brasil
Brazil where the women are gorgeous and have great big cellular bills? Whats up with the cell phone bills in Brazil. Our guy averages about 1700US a month. You should invest in a cell company down there? But I digress and it is late.
Commodities and huge rising middle class make this ETF look sexy. The major financial sectors are Itau Unibanco and Cramer fave Banco Bradesco, both very solid financial plays. World cup commitments and Summer Olympic commitment means a mandatory ramp up on infrastructure improvements. More jobs more middle class more prosperity. I am liking this one.
It is volatile and the government has shown they are not afraid to cool things off when they have to. That can be good or it can be bad if they guess wrong. The only other thing that is a little goosey is that the Brazilian Government is your partner in the biggest EWZ holding Petrobas.
The fund is only up about 4% this year but has averaged 45% over the last 6 years. It take a flyer on in it.

PIN - India

Surprisingly there are not that many India funds. Unlike China and Brazil India PIN holdings only have a 20% exposure to export markets. You can look for GDP just under China’s next year China is expecting a conservative 9-11% and India is looking for 8-9%. The country is bureaucratic and corrupt. Droughts expected next year could force an inflation factor that might hurt the fund. If India ever got its act together in the ag sector they could be a world leader and better employ the 50% of the population that is employed in that sector.
I think the fund could see a 20-25% gain next year. I would not count on the 79% gain seen in 09.

I hope this helped.

If I were going to play, I would weight the investment like this:

EWJ – Japan 5%

EWY - Korea 10%

EWA - Australia 25%

RSX – Russia 20%

EWZ – Brasil 25%

PIN - India 15%

It should be another quiet day tomorrow unless Pelosi and Reid shake things up in DC. Look for some profit taking but I am thinking the market will close slightly up. From the 34 e-mails I gleaned tonight here are some ideas for plays tomorrow.

UBS has mentioned that EXR Extra Storage Space might be the target of a take over. This could be a time to buy on the rumor and sell on the news. I am not impressed by the fundamentals or the chart. I won’t be buying any, but thought it worth a mention.

This one confuses me. CAG ConAgra. Its fundamental don’t look too bad, it is throwing a sustainable 4.15% dividend, but the management is talking 2011 earnings down. It is coming up on several buy lists? When you look at the chart, it looks like a classic short stock. Too much confusion. We will leave it alone.

WBMD WebMD is looking pretty good. Its financials are pretty clean The chart is shaping up nice for a possible play with a Call option. We will wait until we can see the direction of the market.
Here is one we are going to take a shot at. STR Questar, the gas Utility in the West. We made some money with that stock in 08-09. We are trying to get some April 2011 18.00 calls for 80 cents. We will be looking for a bump in the stock to 19 by January and that should give us a double.

And lastly, there were some after close pre earnings announcements for PLL PALL. They reported strong today so we might have missed the bus on this but we are going to try and grab a March 50.00 call for about 2.20 each. If we get it we will probably flip it some time tomorrow with what I hope to be a 30% gain.

Is The World Flat?

I was bit under the weather today and since we were talkng about global markets and the market being flat, I decided to see if the earth was actually flat.  Here was my result:

Salve Lucrum

Wednesday, December 08, 2010

8 December 2010 It’s a real nowhere market. . .


8 December 2010 It’s a real nowhere market. . .

As in, not going anywhere. First off Happy Birthday Debbie.

Ok I read Cramer’s first message of the day and I swear he must have read my blog. The title of the piece was “A Big Defeat for Obama”. Again Mr. Cramer feels there could have been a better message than let’s take off the gloves and agree to fight two years from now.

Then I was looking for some quick option plays. The first thing I did was to cover a gain in my GLD ETF by buying some June $110.00 puts on the ETF at 1.24. Don’t get me wrong, I feel GLD has a way to go yet and look for my exit closer to $1500 and ounce. It’s just that there could be a correction of 10% or so and this is a good way to make money on the way down, take the profit and pick up more of the ETF when it corrects.

Then we took a 48% loss on a TIVO December 9.00 call. In looking at the trade, I should have gone further out on the call, perhaps a March or April option. Basically I was buying a rotten Apple (Not AAPL) because I bought it so close to the December 18 expiration date.

Right out of the box this morning we picked up on a positive future guidance statement from the management team at GIII, G II Apparel. At 6:31 we picked up some March 30 dollar call options at $3.10 a contract. We sold them at lunch today at $4.00 a 29% gain in four hours.

We also sold out of our $20.00 April call options for BKI Tech we mentioned here about a week ago. We got in at $2.15 a contract and are out at $2.90. That would be a 34.8% gain before fees.

We know that these trades might be hard to follow, but since jerking around with these options, we have had the best 5 weeks in my 25 years of investing. My realized gains, since November 1, 2010 is 10.1%. We have never broke 10% in realized gains in one month.

Lookin’ for yields in all the right places.

Now our regular reader and occasional contributor “Hutch” might think this segment is for him, it really is for everyone. Seeking Alpha and AAII (American Association of individual investors both did pieces on high yield high growth stocks. First I wanted to share some of their picks with you then show you how to harvest your own.

Both articles suggest using stock screeners that have a combined growth and dividend yield of 10% or better. In other words a company with an annual revenue (sales) growth rate of 5% and a dividend yield of 5% would qualify.

Here are some of the winners. ABT Abbott Labs, JNJ Johnson & Johnson, Harleysville Group HGIC, Kimberly-Clark KMB, Northeast Utilities NU, Buckeye Partners BPL, Intel Corp INTC, CenturyLink CTL, Smucker’s SJM, Procter & Gamble PG, Coca-Cola KO, and Aqua America WTR.

OK kids follow along at At the home page pick Stock screener. You will see that you are screening 6756 stocks. On the top of the selection page, choose dividend yield. Click on the box and you will see a drop down menu. You will see a list of choices. For this exercise I am using >5% because I only want to see companies with a dividend yield of 5% or more. That screen will result in a list of 909 companies. Now we will use the tab next to Overview called Valuation, click on that tab and you will see anew page of criteria starting with a column called Market Cap. At the top of the screen filed you will see a box called fundamentals. Click on it. Of the 29 criteria choices in front of you, from the second column choose sales growth over the last 5 years. Select >5% and click on it. You now have narrowed your search to 192 companies. Now you can stop here or limit your list more. For this exercise we will stop here and work with these 192 companies. With the list in front of you go to the third tab and click on financial. Your second column is dividend. Click on it once and then one more time. It should display the list in descending order with BSI at the top of the list with a dividend yield of 39.98%. That was the sound of our friend “Hutch” fainting. Wake up Bon the payout ratio is 120%, it’s not real. Any once you have the list in descending order, go to the bottom of the page and you will see a little blue word called “export”. Click on it. It will open a dialog box asking you to open or save the file as a CSV file (it’s a spreadsheet and it will be saved in Excel). Save it with a name you can remember. Then open the file. It is a huge excel spread sheet but don’t let it scare you as we will be dumping all of the columns except the dividend. If you know how to do that, do it now while I explain how to to the everybody else. Go to the column headers and highlight all of the columns except for dividends and the company name and delete. You should end up with the column with the name and the column with the dividend yield in descending order.

Now go back the finviz page and choose the valuation tab and it will populate the page with the valuation information. In the 13th column over you will see 5 years sales growth. BSIs 5 year sales growth is 6.49%. Again, go to the bottom of the page and click on export. This time you will have another spreadsheet open up. Save it with a similar but slightly different name so you can find it. Open that spreadsheet. Cope all of the data from the 5 year sales history column and past it in the third column of your first spreadsheet. I know ti sound confusing, but if you follow along it makes perfect sense. You should end up with a 4 columned spread sheet with number as your first column, ticker as your second column, dividend yield as your third column, and 5 years sales as your fourth column. Now we want to ad the 3rd and 4rth column. Go into cell e1 and type =C1+D1 and hit enter. You should see that cell, E1 display the value of 46.47% for BSI. Now you will go to the top of the menu bar and choose data. In the drop down menu choose sort. In the first box choose sort by Column E and pick the radio box descending. You should see 56 HTGC with a combined sales and dividend value of 229.85%. You now have a list of 192 companies to start doing homework on, that have great (if not unbelievable) sales and dividend numbers. If anyone wants a one on one demo of what I did, please drop me a note and I will make it happen. The stock screener is one of the best FREE screeners out there. Have fun with it.

Hot off the presses.

SAI SAIC, Inc. provides scientific, engineering, systems integration, and technical services and solutions to various branches of the U.S. military, agencies of the U.S. Department of Defense, the intelligence community, the U.S. Department of Homeland Security and the other U.S. government civil agencies, state and local government agencies, foreign governments, and customers in select commercial markets.

We read a late day poor guidance report on the company for next year. We are going to try for some 16 dollar May puts at the 90 cents. When the stock moves towards 15 we should see a 30-40% gain on the put. We’ll see.

President Obama introducing one of his new contenders for his fight agaisnt the Republicans in 2012.
Salve Lucrum

Tuesday, December 07, 2010

7 December 2010 Defending a Compromise


7 December 2010 Defending a Compromise

As we mentioned last night, The Obama Administration compromised with the recently empowered Republican party. It was probably a good move for everyone except for those worried about our national debt. In all seriousness, it was a difficult decision he faced. Do nothing and everyone including the filthy greedy rich folk would see taxes increase and capital gains tax almost triple. So he did what he had to do get something done by years end.

The market started to take off this morning, but did not see the pop I would have imagined. That tells us that a lot of folk, (especially fund managers and financial advisors) had this compromise priced into the market. We were up 70 points on the DOW when the President approached the podium and explained to the world why he rolled over. Those greedy Republicans had taken America Hostage and he had to make nice in order to get extension on the unemployment rolls another 13 weeks. (He used the word hostage 4 times in his 20 minute appearance.) By the time he finished, he had threatened an embattlement in two years to make things right (increase capital gains tax, higher income taxes for filthy rich greedy people, a return of the 55% death tax, to name a few). So his compromise became his battle cry and the market reacted accordingly. In the twenty minutes he spoke, the market went from 70 points up to 14 points up.

Bill Clinton (am I really going to quote Bill Clinton, I must be desperate for material), said on many occasions, it not what I do it’s what I say. That's not to imply Clinton was a liar. (That impeachment thing was all just a big misunderstanding.) President Obama had a huge win, he positioned himself in the light of Ronald Reagan by making this controversial compromise. He should have explained why this is good for the country and Americans. (Last I checked, filthy greedy rich folk were still allowed to be citizens.) He could have explained why this is good for curbing unemployment and poverty. He could have shown how this will stimulate the economy, or at the very least not cripple it with new taxes for all. He could have said the right things to instill confidence and hope for a better economy in the next two years versus drawing another line in the sand across from the impressive shift in power in Congress and Senate.

Stepping Down From My Soap Box

The term Soap Box has a questionable back round. My usage comes from the days when there were no huge stage and ultra large crowds and the political pundits would use merchandise crates, turn them upside down and speak their mind to people who really don’t care. Today we call them blogs, but I am done now so we can talk about what is going on in the market.

On some disappointing earnings guidance on FIS we bought some March 19 dollar puts at $1.59. We will be looking to get out at $2.25 a 40% gain.

We sold out RES March 30 dollar call at a 68% gain after one week. We were in at $3.20 and out at $5.40.

After some first quarter negative guidance from the management of TLB Talbots we bought some May 8 dollar puts at .98 cents. TLB closed at 8.80 today and the put is off about 7%.

I can dig it, he can dig it , she can dig it, we can dig it, they can dig it, you can dig it, oh, let's dig it, can you dig it, baby. Sorry about that got carried away. Do you remember our old friend RIG? Well it might be time to think about getting back in the water with them. BUT, rather than tying up 70 dollars a share, we can get some January 2012 LEAPS (basically long term options) for a couple of bucks. We chose the 100 dollar January 2012 LEAP and we got in for $2.19 a contract. Again that means we are controlling 7,000 dollars of RIG for $219.00. As oil continues to creep up and RIG clears some of the BP stigma, it could easily see 85 by mid year. The call would see about a 400% gain if that happens.

OK here is a great illustration as to the volatility of options. If you recall, last week we told you about a PUT on BKS, Barnes and Nobles as we were hearing a death rattle in its fundamentals and future earnings. Remember a PUT is a bet the stock would be going lower. Well a group of investors are putting together a deal to take the company private or merge it with Border’s. That has sparked some life back in the patient and as a result, our losses went to an unacceptable level. We are out of the put with a 58% loss. It was a good decision, the investment group was not in the cards when we made the decision to buy. The decision was better than if we chose to Short the stock by several hundred dollars.

We also stopped the ticking time bomb on a 145 dollar December call on Netflix after a 32% loss.

We took a 20% gain in the GE March calls we described last night. If my math is right that is a 5,600% annual gain. I like snorting, I mean buying options.

If your account is set up for it, here is a fun cheap one you might want to play along with AFG  American Financial Group, Inc., through its subsidiaries, engages in property and casualty insurance business in the United States. We are trying to get into this tonight (Tomorrow). We spotted this on FINVIZ tonight, looked at the fundamentals (I won’t bore you because I am tired too. Please do your homework.) and they look pretty darn good. They have a really sexy chart with the 50, 100, and 200 day averages headed all in the same direction with impressive volume. Try and get a March $35.00 call option under .50 cents. We are shooting for a 40 cent grab. My break even will be 31.96 which is were it closed today. We will be looking to get out at 80 cents a contract which will be a nice double. The stock only needs to go to $32.50 by January to see that happen.

Salvay and Loocrum is a hit.

Several of you have sent notes or ran into me and commented on the Salvay and Loocrum animations. Some of you have asked for your own avatar and to be in the animation and a few have asked I create an avatar for me. (There is no accounting for taste.) My daughter suggested I use the animation to describe some of the more advanced strategies or terminology as it is conducive to learning. (Her opinion must be heeded as she is an Associate Producer on a Warner Bros TV show-Supernatural)

We will be playing with over the next few weeks to see how best to use this cool animation site.

President Obama drawing a line in the sand.

Salve Lucrum