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


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