Monday, January 31, 2011

31 January 2011 Look up in the Sky it’s a Great Stock

BAGAKOAA 31 January 2011 Look up in the Sky it’s a Great Stock

It was a pretty good day today in the market. We did not to get much (if ANY) chance to play. When we get a chance we’ll give some of the pin action in the account.

We got a few right and few wrong today. XOM was a beat, ITW was very close, but a miss, we called the miss at APC Andarko, we called the beat on income and spending figures from Commerce, but we really messed up and missed on Bennito’s Birthday. Oh yeah he will come in at 55, he just will be coming in tomorrow and not Wednesday. Happy B day again. We are guessing not much of a move on the IBD S & P 500 rating say a B- or B and a slight move up in the percentage of NYSE companies above their 200 day average.

Question from a reader.

One of our regular readers Megan was sharing with me her portfolio and had a question about a beautiful double on SWKS Skyworks Solutions. It was the age old question of is it time to take money off the table and is a stop appropriate (Sorry Megan I am paraphrasing and it is late.)

Any who we hope you appreciate the reply. I am not providing the IBD visuals because it is subscription based and strongly protected.

Ok let's talk SWKS As you can tell this stock is a beauty as far as IBD is concerned. You're question is whether to sell any or all? Megan, I can tell ya from experience you don't get too many doubles in life. That said, companies like this that continue to show growth and institutional buying. Here is my suggestion, consider stopping your xxx shares at $25.50. That will guarantee an 80% gain. It looks like the stock has some resistance at its 50 day average of 29. If you see a few more positive days with volume above 3.9 million and the price above 30, gather up some more change and pick up a few more shares. Then move your stop up at 20% off any new highs. You might have a thoroughbred on you hands. BTW the P/E you quoted was current P/E. Always try and focus on the forward P/E ratio which is a reasonable (dare I say) cheap PE for a gangbuster stock like this. When you look at EPS, be sure to compare Quarter to Quarter. Actually when you look at third qtr 09 to 10 there was a drop from .33 to .25 (Which was the only read mark from IBD.) Oh yeah always look at diluted EPS as it will take into account all the warrants and employee stock options into consideration. I'd have to do a lot more homework, but the stock is being rewarded for a climb of having a 55 cent loss in 2005 to making 75 cents a share in 2009. Except for a little hiccup in 2009, their EPS Growth is very impressive.

They reported a great quarter on the 21st. Let the market digest it, watch the volume and like I said if it sits about 30 for a few good positive days riding into next quarter’s earnings season.

The March of Millions

Keep an eye to the east tomorrow. Egypt is expecting more than a million protestors in the March of millions demonstrations. While it is no consolation to the 70+ people who have died in the clashes, the Military has said it will not use force to stop the gathering tomorrow, but Mubarak has closed banks cut cell phone coverage and it is getting a little tense. Let us hope for a peaceful demonstration and that the government gets the message, 30 years of even a good thing (not saying this regime is a good thing or not) gets old.

Salve Lucrum

Sunday, January 30, 2011

30 January 2011 Any Excuse Will Do.

BAGAKOAA 30 January 2011 Any Excuse Will Do.

There was a lot of great stuff in this week’s Barron’s. We are a little pressed for time and despite a late start, we do want to cover as much as possible.

Santoli did a great job of describing how the market was waiting for an excuse to correct and the protestation in Egypt (Which followed the peaceful change of power in Tunisia) provided a great reason to take profits and worry about something else other than China tightening its purse strings and The ABCs of Euro defaults. It worked and we had a nasty correction on Friday. If you were reading we took quite a bit off the table during the week. We did that because of a cash need and because we did thing the market was a bit hyped. You cans see the posts for yourself.

Where will the market go this week? Most are guessing the Suez will not be impacted, and the demonstrations will continue, but Mubarak is under scrutiny of the World stage not to let things get too crazy. My guess is you will hear support for “free” elections this September and the distinct possibility of a peaceful change in government. It might not be the government the US wants, but it will be a quasi-democratic effort. That sentiment should settle things down by weeks end.

Then we will see who is selling and buying. My guess is that once all the big player have felt how good it is to take a profit this last Friday, they might enjoy it some more this week. We are guessing the market to be down another 2 points this week.

With that said, we are in the heart of earnings seasons and any small string of surprises either way could cause havoc and halt the sell off or escalate the retreat. All it would take would be XOM Exxon to miss, along with a miss from the likes of ITW Illinois Tool, and throw in a miss from APC tomorrow and there will be those who swear they got hit by a piece of the sky falling. (Personally we thing all three will be beats and the market will take the beats with a grain of salt.) Others to watch this week which could be market movers, ARMH Arm Holdings in the UK, CMI Cummins, MHP McGraw Hill (Look for a big miss), PFE Pfiezer, UPS (a beat), BSX Boston Scientific, MEE Massey Energy, WU Western Union, WHR Whirlpool, GMCR Green Mountain Coffee (Beat), V Visa, YUM Yum Brands, MRK Merck, RDWR Radware, CLX Clorox, TYS Tyson Foods ( amist due to rising costs), and WY Weyerhaeuser. That is only a few of the hundreds of companies reporting this week.

If that was not bad enough, we have quite a few economic data points headed our way. Monday we find out what we are making and what we are spending. Personal Income and Outlays are announced Monday. Look for both to be up a tenth of a point. That is the guess and we agree. If anything it might be too conservative. Monday will also see the Chicago Purchasing Manager’s Index (PMI). It took a nice leap last month and most are looking for a downward adjustment. With the inventories report quoted last week, We are thing it may be flat with December. Look for a 68 which would beat estimates. (BTW that would be a good thing). Tuesday is motor vehicle sales and the target number is 9.4 million units. We are skeptical but will take their guess. (China is on target to sell close to 12 million units.). The ISM, another manufacturing number and the guess is relative flat at 57.5. Again we are thinking a little more oomph to 58.5. Wednesday we have a BIG event. It is Bennito’s Birthday. Happy Birthday Buddy. The consensus is 55, and we happen to know that is where he will come in. ADP is reporting and we will hopefully see some good employment news and small as it might be. That will be followed by our usual jobless claims number which disappointed last week. Look for a slight improvement. Which will be followed by the overall employment report on Friday. Look for unemployment to remain flat as publics jobs get lost to new hire in the private sector.

So that means, earning should be the driver for the market next week assuming the there are no other Middle East County with dancing in the streets.

Value Vs Growth.

It has been a while since I have seriously read the IBD (Investor’s Business Daily). We used it in the late 80s and early nineties and then again circa 98-2000. We always enjoyed it, but was sometimes overwhelmed with all the data that was presented on a daily basis. In the last two years we have limited our IBD exposure to our Kindle Download everyday. We also used the IBD stock check up (Along with VectorVest) when doing a complete analysis of an equity.

This weekend, we had a chance to once again read through O’Neil’s (Founder of IBD) “How To Make Money In Stocks”. While I do not agree with every single element of the CAN SLIM investment strategy, this book is a great primer and guideline and in my case refresher in some of the mechanics of stock evaluation.

Last night at another great meal at Hanna’s we had one of our guests (and reader) thanked me for suggesting the sell on the 8% drop rule. The do this using stop orders which we also suggested. He indicated that has helped protect his down side and lock in profits. The concept came from the CAN SLIM System.

In review the book in its latest edition, (4th) It got me thinking about some of the basic rules I use for evaluating stocks. At heart we are a value investor and we do use P/E Ratios as one key criteria. We probably always will, but after reviewing this book again and looking at our own portfolio and some of the examples in the book, a much more powerful criteria is EPS Growth.

When you look at Earnings Per Share Growth (Quarter to Quarter for the last year ie 4th qtr 2009 versus 4th qtr 2010) and an average of the last 4 years EPS Growth, and share price performance, EPSG almost always blows away P/E ratio. In fact, higher P/E ratios with 20-25% EPS Growth seem to be stellar stocks.

We bring this to your attention only to point out that we will be slightly adjusting our analysis to include Q T Q and 4 Year Averages of the EPS figures from this point further.

Options strategies

We are committed to learning more about options as we have seen some impressive realized gains in our portfolio since we have started using them. I am wondering how many of you readers have option trading and or margin privileges on your accounts. I ask so I can determine how much of the options contract info I should include in the blog. Regardless we will mention the companies we are optioning and report our wins and losses. Just hit reply and let me know if you are an option kinda player.

A Pharma Update

A few weeks ago, we did a piece on pharma’s and we got into PFE Pfizer (looking back on it and using EPSG as a criteria, we would have probably not bought the stock.) In this week’s Barron’s, there was a good article by Andrew Bary about Big Pharms who need to get some new products on the line and a common strategy is to buy smaller pharms rather than spend the time and monies playing FDA Roulette. The article points out 13 prime candidates for take over in the next 12-18 months. We will not (out of respect for Mr. Bary and Barron’s) provide the entire list but give you a few we checked out that looked interesting or one’s we discovered off the list that looked interesting as well.

Not On The List MATK Martek Biosciences Corporation engages in the development and commercialization of nutritional products from microbial sources, including algae, fungi, and other microbes worldwide. Its products include life's DHA, a vegetarian source of algal DHA omega-3 important for brain, heart, and eye health throughout life, as well as for use in foods, beverages, infant formula, and supplements; and life's ARA, an omega-6 fatty acid, for use in infant formula and growing up milks. In addition, the company's subsidiary, Amerifit Brands, Inc. develops, markets, and distributes branded consumer health and wellness products in mass, club, drug, grocery, and specialty stores. Its products include Culturelle, a probiotic supplement; AZO, an OTC brand addressing symptom relief, detection, and prevention of urinary tract infections; and ESTROVEN, a nutritional supplement brand addressing the symptoms of menopause. Martek Biosciences Corporation also provides contract manufacturing services for the production of enzymes, specialty chemicals, vitamins, and agricultural specialty products. It sells oils containing fatty acids under the names of life'sDHA, DHASCO, Neuromins, ARASCO, and life'sARA. The company markets its nutritional oils primarily to the infant formula, pregnancy and nursing, food and beverage, dietary supplement, and animal feed markets. Martek Biosciences Corporation was founded in 1985 and is headquartered in Columbia, Maryland.

NOT ON THE LIST BIIB Biogen Idec Inc., a biotechnology company, develops, manufactures, and commercializes novel therapeutics in the areas of neurology, oncology, immunology, cardiopulmonary, and hemophilia in the United States and internationally. The company's marketed products include AVONEX for the treatment of relapsing multiple sclerosis (MS); RITUXAN for treating relapsed or refractory, low-grade or follicular, CD20-positive, and B-cell Non-Hodgkin's Lymphoma (NHL); TYSABRI to treat relapsing MS; and FUMADERM for the treatment of severe psoriasis. Its products under development consist of BG-12, a Phase III clinical trial product for the treatment of MS; Humanized Anti-CD20 MAb, a Phase III clinical trial product for the treatment of rheumatoid arthritis and lupus nephritis; Lixivaptan, a Phase III clinical drug for the treatment of Hyponatremia; Daclizumab, a Phase II monoclonal antibody that is being tested in relapsing MS; and Fampridine, an oral compound as a treatment to improve walking ability in people with MS. The company's products under preclinical stage comprise BIIB014, Ocrelizumab, Neublastin, LINGO, and BART for neurology; Hsp90 Inhibitor, GA101, Anti-IGF-1R, Volociximab, Anti-CRIPTO, RAF Inhibitor, and Anti-Fn14 for oncology; Anti-TWEAK, Anti-CD40L Fab, and Anti-FcRn for immunology; and Long-acting rFactor VIII for hemophilia. It has collaboration agreements with Neurimmune SubOne AG; Cardiokine Biopharma LLC; UCB, S.A.; Swedish Orphan Biovitrum AB; Facet Biotech Corporation; Vernalis plc; and Schering AG. Biogen Idec Inc. was formerly known as IDEC Pharmaceuticals Corporation and changed its name on November 13, 2003. The company was founded in 1985 and is based in Weston, Massachusetts.

UTHR United Therapeutics Corporation, a biotechnology company, engages in the development and commercialization of therapeutic products for patients with chronic and life-threatening diseases in the United States and Internationally. It offers Remodulin, Tyvaso, and Adcirca (tadalafil) tablets for the treatment of pulmonary arterial hypertension (PAH); and CardioPAL SAVI and decipher cardiac monitors, and CardioPAL SAVI wireless cardiac event monitors for cardiac arrhythmias and ischemic heart disease. The company's under development products include Oral Treprostinil, which is in Phase III clinical trials for the treatment of PAH and is in Phase II clinical trials for the treatment of peripheral vascular disease; Beraprost-MR, a Phase II clinical trials product for the treatment of PAH; 3F8 MAb, a Phase II clinical trials product for neuroblastoma; Aviptadil, a Phase II clinical trials product targeting pulmonary hypertension and other pulmonary diseases; 8H9 MAb, a Phase I clinical trials product for the treatment of metastatic brain cancer; IW001, a Phase I clinical trials product that targets idiopathic pulmonary fibrosis and primary graft dysfunction; and Glycobiology Antiviral Agents, which are in pre-clinical trials for Hepatitis C and other infectious diseases. United Therapeutics Corporation also provides telemedicine monitoring services to detect cardiac arrhythmias and ischemic heart disease. The company sells its products through sales and marketing staff, specialty pharmaceutical distributors, and pharmaceutical wholesalers. It has a licensing agreements and relationships with Eli Lilly and Company; Toray Industries, Inc.; NEBU-TEC; Mondobiotech; ImmuneWorks; GlaxoSmithKline PLC; Pfizer Inc.; and Supernus Pharmaceuticals, Inc. United Therapeutics Corporation was founded in 1996 and is headquartered in Silver Spring, Maryland.

JAZZ Jazz Pharmaceuticals, Inc., a specialty pharmaceutical company, develops and commercializes products for neurology and psychiatry primarily in the United States. The company's marketed products include Xyrem, a sodium oxybate oral solution for the treatment of excessive daytime sleepiness and cataplexy in patients with narcolepsy; and Luvox CR for obsessive compulsive disorder and social anxiety disorder. The company's late-stage product candidate comprises JZP-6, which has completed two Phase III pivotal clinical trials, for the treatment of fibromyalgia. Its other product candidates in clinical development consist of JZP-8, an intranasal formulation of clonazepam for the treatment of recurrent acute repetitive seizures in epilepsy patients who continue to have seizures while on stable anti-epileptic regimens; JZP-4, a controlled release formulation of an anticonvulsant for the treatment of epilepsy and bipolar disorder; and JZP-7, a transdermal gel formulation of ropinirole for the treatment of restless legs syndrome. In addition, the company is developing oral tablet forms for sodium oxybate. Jazz Pharmaceuticals, Inc. was founded in 2003 and is headquartered in Palo Alto, California.

PLEASE DO YOUR HOMEWORK. We do own some calls on BIIB, and we are looking at UTHR. All four seem to be candidates for takeover and could do well without the big guys.

What we Need this week are Happy Egytians

Salve Lucrum

Thursday, January 27, 2011

27 January 2011 Ain’t Got No Home


27 January 2011 Ain’t Got No Home

Clarence “Frogman” Henry recorded this pseudo novelty song in 1956. Influenced by Fats Domino and Professor Longhair, Henry had few nice size hits but also was the opening act for 4 guys from Liverpool in 1964. He had a home in New Orlean’s, can vote there and even run for office there. No such luck for one Rahm Emanuel former Chief of Staff who left the White House to run for Mayor of Chicago. Ya see he has a home in Cook County but he rented it out when he went to DC where he had lived for the last 3 years. He tried to get the renters out, but found that is not as easy as you might expect. Perhaps he thought he could have them expelled like the 300,000 families in the Chinese Valley’s of the 3 damn projects. Fortunately, China does not own that much of the US to Give the White House that much power. So Emanuel tried to claim a “national service” exemption in order to get on the ballot.

The Chicago Board of Elections (LEFT) known for its centuries of accurate and upright vote tabulations, said that “national service’ exemptions apply to voters and not candidates. It has gone to appeal, but the election is Monday. This could be and looks like a major career Oooops. And this guy was our President's right hand man. At least Hilary was smart enough to get an address in New York before she tried to run. The real irony is that one Mr. Obama used the same tactic (residency issue) to remove several people from the Illinois Congressional Ballot he was on in 2000.

Wait too long

What do you think cost most investors to not make money or loose money? Good homework? Bad decisions? Bad timing? Inaccurate information? Bad Stock Tips? None of the above.

Most investors or home gamers either wait too long to do anything or they wait too long to do NOTHING. That is why you have to have a plan and rules. Both take you, with all of your insecurities, egos, ineptness, procrastinative tendencies, and distractions out of play. There are people right now reading this that have told me they want to get in the game. Every time I see them they say, yeah we are going to put some money in the game. Some have been saying this since March 2009. (Dow at 6,600 S & P at 690) They may have missed one of the best rally’s of their and their kid’s lives.

So decide to do it. Have goals and rules so you don’t screw things up! Know what you have to do to find a good place to put your money. Know all the homework involved. Decide a fair value for the stock and try and buy it at that price, not a dime more. If you can’t, don’t buy it. Before you buy it know where on the downside you are going to sell and where at the upside you will take some or all of your profit. Decide all of that before you buy, then go do it.

One of our readers asked us to kick the tires on a stock here is the process in action

HCBK Hudson City Bancorp, Inc. operates as the bank holding company for Hudson City Savings Bank that provides a range of retail banking services. It offers a range of deposit accounts, including passbook and statement savings accounts, interest-bearing transaction accounts, checking accounts, money market accounts, and time deposits, as well as IRA accounts and qualified retirement plans. The company's loan portfolio primarily comprises one-to four-family first mortgage loans for residential properties; multi-family and commercial mortgage loans; construction loans; and consumer loans, such as fixed-rate second mortgage loans and home equity credit line loans, as well as collateralized passbook loans, overdraft protection loans, automobile loans, and secured and unsecured commercial lines of credit. As of December 31, 2009, it operated 95 branches located in 17 counties throughout the State of New Jersey; 10 branch offices in Westchester County, 9 branch offices in Suffolk County, 1 branch office each in Putnam and Rockland Counties, and 6 branch offices in Richmond County; and 9 branch offices in Fairfield County, Connecticut. The company was founded in 1868 and is based in Paramus, New Jersey.

Let’s Look at the fundamentals

Yeah they got a nice Dividend (probably what caught the reader's attention) but look at the payout ratio. Over 50% means they might be straining to pay the 5% dividend. ROE, how management handles the resources is a sickly 9.90% we prefer 25% or better. The price performance for the week, month, half year is yucky. As you will see on the chart in a line or two, it is like trying to catch a falling knife.

Then we go to their last Quarterly SEC Filing

The CEO spends a lot of time explaining that the Reform Act signed into Law by president Obama is changing all of the regulations and they are changing their charter from a savings and loan to a national bank. More importantly, he explains some of the operational pressures of lower interest rates and the GSEs (Fanny Mae Freddie Mac) putting on the interest levels. Here is a highlight:

“Net income amounted to $124.6 million for the third quarter of 2010, as compared to $135.1 million for the third quarter of 2009. The decrease in net income for the third quarter of 2010 is the result of a decrease in net interest income reflecting a lower net interest margin, an increase in the provision for loan losses and higher deposit insurance fees, offset in part by an increase in realized gains from securities transactions. Net income increased 6.5% for the first nine months of 2010 to $416.0 million as compared to $390.7 million for the first nine months of 2009. The increase in net income for the nine month period reflects an increase in net interest income, an increase in realized gains from securities transactions and the absence of the FDIC special assessment offset, in part, by significantly higher deposit insurance fees as well as a higher provision for loan losses.

For the quarter ended September 30, 2010, our annualized return on average assets and average shareholders’ equity were 0.82% and 8.86%, respectively, as compared to 0.93% and 10.34%, respectively, for the corresponding period in 2009. For the nine months ended September 30, 2010, our annualized return on average assets and average shareholders’ equity were 0.91% and 10.07%, respectively, as compared to 0.92% and 10.17%, respectively, for the corresponding period in 2009. The decreases in our return on average equity and average assets are due primarily to the increase in the average balances of shareholders’ equity and total assets for the three and nine months ended September 30, 2010 as compared to the same periods in 2009. (I am just guessing here but think that they had to increase equity balances to meet the baning industry stress tests.) In addition, the decreases in our return on average equity and average assets for the quarter ended September 30, 2010 as compared to the same period in 2009 are also due to a decrease in net income for the same corresponding periods.

Net interest income decreased $35.2 million, or 10.8%, to $290.3 million for the third quarter of 2010 as compared to $325.5 million for the third quarter of 2009. Net interest income decreased primarily as a result of a decrease in the weighted-average yield of our interest-earning assets. During the third quarter of 2010, our net interest rate spread decreased 31 basis points to 1.73% and our net interest margin decreased 34 basis points to 1.97% for the third quarter of 2010 from 2.31% for the third quarter of 2009. Our net interest margin decreased during the third quarter of 2010 as the average yield on interest-earning assets and the average cost of interest-bearing liabilities both decreased while the average balance of interest-earning assets increased. Net interest income increased $27.3 million, or 3.0%, to $939.0 million for the first nine months of 2010 as compared to $911.7 million for the same period in 2009. During the first nine months of 2010, our net interest rate spread decreased 3 basis points to 1.86% and our net interest margin decreased 8 basis points to 2.10% as compared to 2.18% for the same period in 2009.

Market interest rates on mortgage-related assets remained at near-historic lows primarily due to the FRB’s program to purchase mortgage-backed securities to keep mortgage rates low and provide stimulus to the housing markets. In addition, over the past few years, we have faced increased competition for mortgage loans due to the unprecedented involvement of the GSEs in the mortgage market as a result of the economic crisis. The GSEs involvement is also an attempt to provide stimulus to the housing markets and has caused the interest rates for thirty year fixed rate mortgage loans that conform to the GSEs’ guidelines for purchase to remain artificially low.”

You can read it in its entirety by clicking on the link above.

Now let’s look at their chart

Ok this is one of the most hideous charts I have ever seen. It is hard to find a chart that has the price drop through the 50 day moving average like this on has. Especially when the 50 day moving average is heading down by 20%. Every surge in volume has been on the down side. This is a put or short candidate.

So the technical term for this equity would be Ka Ka!

Can’t leave ya with a looser so let got to:

Pick of The Day

MRCY Mercury Computer Systems, Inc. engages in the design, manufacture, and marketing of high-performance embedded, real-time digital signal and image processing systems and software for embedded, and other specialized commercial and defense computing markets.

We tripped over this as we were doing some homework today at lunch (waiting for a contractor to call about an inspection). It should have been open our horizon as they report big two days ago. We did the fundamentals on this charmer and even though the company is named after a deadly heavy metal, or perhaps a Greek God, They Look Great. 

Anyway we are loving the no debt, $3.38 a share cash, great gross margin, and the target price of $24.50 gives a nice margin of safety. (22.8%)

If you are into reading tea leaves (yes I am becoming a technical analysis convert as it has improved my guessing skills) check out the cute little cup in August September followed by the adjustment with low volume. Oooh be still my heart! Woulda coulda shoulda. Then we were off to the races and look at the huge institutional buy in around Christmas. Now we have a little price contraction on LOW volume, which could be setting us up for a nice run.

DO YOUR HOMEWORK. Part of your homework has to be the most recent SEC Filings

Some highlights worth mentioning was a stronger increase to commercial customers and decline in military order. Now the commercial customer seem to be mostly in the semiconductor industry. Most of the segments of that industry are in good shape (except PCs)

Now their drop in military order revolved around the completion of an “UAV” unmanned aerial vehicle aka drone program.

The good news to that story is, with outlined cutbacks to certain Jet programs, the military will be more reliant on Drone technology. This plays well for Mercury long term. The only negatives we could find was a 2009 registration to sell an additional 100 million shares. Also they have a new loan with some negative covenants, but there are well with in ratio and look like than can easily stay clean for the next 12 months. We like what we saw, but follow the link and read the filing. Make sure you check out the discussion about free cash flow.

There are no calls on this baby so we had to use real money but we are in at $19.95. We have stops in place at $18.50 and are looking for a 25% pop before March 31 and then we will re-evaluate.

More Eyes If You Please

Two new readers (that makes 46) have joined us along with a few hundred lookie loos from Rudy and Don from Table 1 at Hanna’s are now getting The Salve Lucrum Blog. They sent a cute piece about Derivatives we will close with tonight. Hope you enjoy:

Understanding Derivatives -- A Primer

Heidi is the proprietor of a bar in Detroit.

She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers' loans).Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit .

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral!!!At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINK BONDS.

These "securities" then are bundled and traded on international securities markets.Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb!!!, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.  One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.  Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.

Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. (This is Brian interrupting, since the bar is in Detroit, Heidi would have taken her last 50 dollars and had the place burned down and collected the insurance, but I digress.) The bar closes and Heidi's 11 employees lose their jobs.

Overnight, DRINK BOND prices drop by 90%. The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.  They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.  Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi's bar.

Now do you understand?

Salve Lucrum

Wednesday, January 26, 2011

26 January 2011 Stop it some more, It hurts so good!


26 January 2011 Stop it some more, It hurts so good!

We were stimulating the economy today as we had contractors tell us they need to measure appliances before they can build walls and stuff. So we used a line from the State of The Union Address last night and “froze domestic spending” while spending much more money than we should furnishing our kitchen. Mr. President did a great job with the rhetoric, but even some of the left leaning media outlets (CNN and NBC) we confused how you freeze spending while double the $780 Billion already spent on certain domestic programs. In the rebuttal, Rep Paul Ryan from Wisconsin got decent grades from almost all media outlets who chose to cover it, in taking the administration to task about the irresponsible spending. (Ryan did not point out and possibly should have that we currently spent 921 Billion at all levels toward education, more than China and India combined. But they are out educating us? Interesting. Perhaps we should out source education to the Chinese)

Ok down off my pedestal.

We got the consumer confidence number right on Tuesday. Well we said it would be a beat, but it was a much bigger beat than even we suggested. However the experts say the beat was for the reasons we cited on Sunday. (Feeling insecure Brian?) Any today we totally blew the new home sales number. We expected a sizeable miss. It came in really strong. It was the lowest high December, but an improving number. Median prices improved about $30,000 as well.

In reaction to the confusing rhetoric of the SOTU Address the market start up from the get go, then it boot scooted boogied sideways through most of the day. As we suggested the Feds no news was good news. There were some interesting company news fro SLE Sara Lee, BTU Peabody, and ROK Rockwell, but what caught my eye was ATI Allegheny Technologies. It caught my eye because it reported well, had some nice forward looking comments, and used to be one of my dad’s first employers when it was Allegheny Ludlum Steel in Albany in the 1940s.

In the portfolio Today

As we said, between the office, contractors and stimulating the economy, we did not get much of chance to check in, but we did take a briefly held call off the table. We took some 30 dollar May calls for SWKS Skyworks Solutions off the books at a 41.6% gain after 5 sessions. Sorry as I do not see where I posted that. It could have been a late night limit order I put up and did not share. Sorry.

People must be making money.

I have had one reader and one acquaintance ask me how do I know when to sell? That is a great question. More thought is put into deciding to buy a stock and what stock to buy than when to sell. There are a lot of strategies out there. Here are a few of mine. First off we have an overall portfolio goal. It is four times the 10 year Treasury Yield. Now I know a few of you that we help with your money say my goal is two times the 10 year yield and that is true. Two times the ten year yield allows for some decent growth at relative low risk points. We can afford to be a bit riskier with our money because it is our money. That risk tolerance allows us to shoot for a higher return.

Anyway our over all goal, as we said is four times the 10 year yield. That puts our number in the neighborhood of 13.6%. Obviously that number changes everyday, so to round it off in 2011 we are looking for a 14-15% return. When we evaluate a stock (not options as we consider those differently) we decide what we think the stock is valued at, where it is priced and what we expect the stock to do for the next 3, 6, and 12 months. Before we buy the stock, we already know where we will get out on the upside and the down side.

We do, for the most part use the IBD CAN SLIM rule of getting out after an 8% drop from our entry point. These rules take a lot of the emotion and pensiveness out of the decision. Just set the rule and stock to it. (If you are not sitting in front of a computer screen all day, consider automatically setting a stop or a trailing stop order at 8% below you entry.)

Now most of you have some stocks that are up and that might be why you are wondering when to sell. Again, IBD has some great guide lines, but they suggest selling (in most situations) when your stock has gained 20-25%. There are several exceptions to their rule, but it is worth talking a look at. Our feelings are if you did a great deal of homework and are 25% up in a stock, how does that 25% compare to the 3, 6, and 12 month expectations you had of the stock. If you are exceeding those goals, consider selling it or some if it. Walk away a winner. Just do it.

If, on the other hand (and I know who you are) you read an article, liked the idea had no goals for the stock and you are up 20-25%, consider yourself as lucky as a KENO player in a stinky Las Vegas Hotel, run to the cashier and get your money NOW.

Now why do we sell at 8% down and sell at 25% up? Do the math. We only have to be right one out of four time to break even. If you do the proper homework, choose the proper entry point, we assure you, you will be right more than one out of four times.

Pick of the day

TER Teradyne, Inc., together with its subsidiaries, provides automatic test equipment products and services worldwide. It operates in two segments, Semiconductor Test and Systems Test Group. A lot of nice things were said about the company today. Rightly so. Even with the 3.5% increase today the P\E ratio is only 11.17, ROE is a sexy 39.87, sales and earnings gains quarter on quarter are huge.

It has a very provocative chart that shows a nice cup and handle back in the August thorough later September which created the first wave of buyers. You can see the dip in volume in the end of September. Now look at the recent new cup starting in mid December to mid January and again a regrouping of the volume (Warning wife does not see the cup in the second adjustment, it could be the glass of wine I had for dinner, OK two glasses of Federalist Zin at Hanna’s.) The adjustment is making us think this will see another 30-35% run over the next 8-12 weeks.

This is how we are going to play this. Take a look at the July $14.00 calls for 2.00 or under. There is a lot of after hour action on the options and the stock. A lot of folk must have spotted what I did which means we are probably wrong. We put in the order and will hope for the best.

Salve Lucrum

Tuesday, January 25, 2011

25 January 2011 Cashin in on Gold

BAGAKOAA 25 January 2011 Cashin in on Gold

It was a bit of a whacky (financial term for mixed) day as some big player had earnings reports all over the place. More on those later. The good news bad news alarms from Europe and Asia we in bad news mode so it made us happy to have something to worry about. The flat day leads us into the Presidents State of the Union Address where every today said he would make nice nice smoochy smoochy with big business. He didn’t get all crazy with business but he did have some good things to say. The corporate tax break was one of the most positive comments of the night. Insisting on the continuation of the health care bill while soliciting input for improvements (like making it constitutional and fiscally responsible) will create some strange bedfellows in the days ahead, but I am optimistic.

On a side note, I hope you got to see the republican rebuttal as it was delivered by the brother of a guy who occasionally sits on my board of directors. Paul Ryan, brother of Tobin Ryan did a fine job of doing the rebuttal. That job regardless of who does it always reminds me of the little man at the end of those old cartoons who used to clean up the animal poop at the end of a parade. Let’s face it, although they have an advanced draft, that person and their staff have about 10 minutes to rebut-is that a word?- what the President of the US has just spent 3 months preparing for. Paul did a good job and pulled very few punches laying out the dire circumstances of not addressing our unsustainable debt. Tobin, please feel free to pass this on to Paul. Kudos to him.

More details about the sideways market.!

3M did nothing to help boost the market as it’s report was yucky. Corning Glass GLW had a great report and was handsomely rewarded. This one made me mad because We called it about month ago after reading a Barron’s article about their Monster Glass product. Do your homework as this is a stock to watch. It was up almost 8%. Harley had smaller loss than expected so they rode that bike up about 8%. VMware, one of our cloud virtualization dream team bets beat big but warned about a consolidating margin. Man why do they have to be so honest. The stock dropped 4% and picked up a couple of down ratings. DO YOUR HOMEWORK, possible buying opportunity. Cramer seems to think so.

One of the huge anchors on the day was the really poor report from JNJ Johnson & Johnson. If it weren’t for a tax allowance and some extraordinary expenses, the miss would have been huge. On the positive side we are happy to say one of our three legs of the iPhone Verizon, Vodaphone trifecta came in today. VZ had a beat on the bottm line because of wireless adds and nice margins. That is without the iPhone. Its not too late to play these three. With an expected 9-12 million iPhone expected in the Verizon network by this time next year, all three stocks should be happy. AX’s American Expresses whole story was really ugly today. Do I see a PUT opportunity?

All the Gold in California

We’ll we have been watching our nice profits on Gold (The ETN GLD) slide through some serious price supports so we took profits in all 9 portfolios that had the ETN. Profits ranged from 44% to 8% depending upon the portfolio. The Salve Lucrum portfolio enjoyed a 22 % gain. We got out at 129 and change. We are looking at weakenss down to the 125 level but will watch it closely.

It's All in the Game

Someone asked about Activision today so I will edit the reply, but share our response. 

I went back two years and don’t remember buying or pimping ATVI. Since 06 I avoided all the gaming stocks except GME, Gamestop which we did OK with. So I had to take a look at the stock from scratch.

Below you’ll see a one year chart with some lines and notes.

1. In September you’ll see a cute little tea cup form, and then the handle corrects a bit then the stock takes off (Note the handle bottoms at about $11.25

2. Note what the correction over the last 15 trading sessions has done to the 50, 100, and 200 day averages (Green, Red, Blue Lines) ideally you want to see the 50 above the 100 above the 200 and all of them headed up.

3. I drew a line near the average volume so we could see what kind of institutional monies are making the price move. There does not seem to me much

4. Is the Put to Call ratio. As you know puts are options betting the price will go down and call are options betting the price will go up. Since this is a put/call ratio a reading of below .5 means there are lot more calls than puts. But this is a contrarian indicator that will eventually adjust to 1.0 so there is pressure on this for the price to come down because so many are betting it will go up.

Fundamentally I have attached another sheet from FinViz. It shows about about 2.36 a share in cash that with the fact that they have no debt is impressive. Their P/E ration is 13.87 which is not too shabby. Their ROE is yucky. It’s an indication of how well management uses their resources. We prefer companies with an ROE of 15 or more. Gross margin is great. The target price of 14.74 gives a safety of margin of 30%. I like that, but analysts are off as much as 20% with their target prices so you still have a bit of a buffer. I am thinking a fair value for this stock is 14 a share. According to my son, when Blizzard merged with Activision, it brought a slew of multi-player on line games that Activision did not have. The subscription based World of Warcraft is really pumping the margin. Call of Duty and Guitar hero gives ATVI endless sequel opportunities. On the down side and according to SEC filings by ERTS Electronic Arts their major competitor, ERTS has poached many of their top programmers from their Affinity Ward division. That could hurt future title developments.

At the end of the day, this is a 14 dollar stock straining to pay a small divided with a possible upside of 19 .00 by years end 2011 That would be a 66% gain. If you want to tie up 11.50 a share to do that, there are worse things. I like the 14.00 August call for 20 cents a contract. I just bought some. We might suggest of the 12 dollar August call for 70 cents a contract. It a little less risky and closer to the money.

A Reader Awakes

One of our regular readers, Hutch, was quiet for a while and I rattled his cage enough for him to get me caught up on his progress (or in some cases lack there of). Hutch for the most part is a value/dividend player with moments of spontaneous speculation. He gets some cool ideas every now and again. His alter ego is a true contrarian and last year he suggested we look at bottom sectors and looking for value in those sectors as he thinks sectors don’t remain at the bottom for too many years in a row. Interesting angle. Hope he does not mind me sharing, but he may have found a nice little gem today. DO YOUR HOME WORK. We Do Not Own This. Fly FLY Leasing Limited operates as a global aircraft lessor. The company acquires and leases modern commercial jet aircraft under long-term contracts to a diverse group of airlines throughout the world. Based in Dublin they have 62 aircraft in service and has what appear to be solid leases with 38 carriers. Fundamental look pretty good. It has a sexy sustainable dividend at 5.69%. We’ll be he used his dividend screener to find this off the radar company. It jumped pretty close to its target price today so the margin of safety in greatly diminished.

Here we see Representative Paul Ryan trying to explain what the concept of a little less government might look like:

Salve Lucrum

Monday, January 24, 2011

24 January 2011 TWA Thoughts, Words, and Actions


24 January 2011 TWA Thoughts, Words, and Actions

We mentioned the conflicting sentiment in the articles in Barron’s this weekend. The comments were bullish with a harbored tinge of restraint. We’ll there was little restraint today in the market. Out of the gate the market was a little flat, but AAPL started to dance as IBM had a good report and Intel announced another 10 billion in buybacks and industrials and materials reacted to weaker dollar by climbing a bit. Only the financial sector had an anchor effect of the market. The dollar dropped because the European Central Bank was talking about tapping the breaks with interest rate jumps, just talking so far. When our tomato sandwich from Hanna’s cleared the gullet, the market was up7.49 points on the S & P. The Dow was up 108. market volume was healthy and we will guess the IBD Accum/Dist grade will go to B+, but oil slid back a bit as there are whispers that OPEC will start pumping and releasing more of the black gooey stuff. Most of the positive action was in the large cap stocks. Some say small caps are like the canary in the mine and they have not been fairing well over the last several sessions. That could be one more tell for a correction.

In the portfolio today, We bought back the February puts we sold for DF Dean Foods for a 54% gain. That was the first time we have ever sold a put so it is a nice little victory. We bought more 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. This continues to do well and after taking some profit a week or so ago we want to re-accumulate. We also took a nice 45% profit on our April calls for WM Waste Management. Now we also initiated a new call position on WM. It is a July 39 dollar call and we picked some up at 95 cents a contract. We will be looking for a 30% pop on those. WM is a great company and we have it long as one of our core holdings. The stall in the financials triggered some stops in ZION Zions Bancorporation, a multi bank holding company, provides various banking and related products and services in the United States. and BOH Bank of Hawaii Corporation operates as the holding company for Bank of Hawaii that provides a range of financial services and products in Hawaii and the Pacific Islands. We enjoyed a 15.2% gain on ZION on the shares we did sell and a 7% gain on the BOH. We still like these stocks and will try and get back in soon. And in another sale today due to a trailing stop, we took some of our BWC The Babcock & Wilcox Company manufactures power generation systems and nuclear components in the United States and internationally, off the table with a 31-40% gain. It is hard to tell since our original position was due to a spin off from MDR McDermott International, Inc., through its subsidiaries, operates as an engineering and construction company worldwide.  Although not a trade, the 10 billion dollar buyback for INTC Intel should improve our holding in this equity.  Also, we had some weak same store numbers for December for MCD McDonalds, but some promising forward looking comments.  Not in our portfolio but of note, HTZ Hertz Gloabl had some very nice forward looking guidance.  AMGN Amgen, just the opposite, same clouds on the horizon.  DO YOUR HOMEWORK.

TWA Two Outa three aint bad

Thoughts, Words and Actions. If you can’t tell we read a lot of stuff about the economy and stocks and investing. What we have seen over the last 5-6 weeks is a subtle shift from the acknowledgement of a rally in November, to a skeptical acceptance of improving numbers, to a concern about the market being overbought. We have gone from thoughts which were not well communicated to words, when Barron’s, The Journal, IBD and others began to speak positively about the slowly improving economy and Wall Street’s reaction to the news to analysts bumping up target pricing and giving glorious earnings guidance for 2011. Now we are seeing a “sleep walk” to high highs in the Dow and S & P. (by sleepwalk we mean little or minimal volume). This week as in last week we are reading the words of those concerned about how much the Fed has puffed up the market and what are the real values behind some of these rising P\E Ratios. That would mean the next step is action. Do you think the action will be exuberant buying or passionate desperate selling or responsible profit taking? Your guess is as good as mine.

I Want To Shake His Hand,  He Made My Baby Fall In Love With Me

In 1961 Barry Man recorded a calssic song.  HU Put The Bomp in the Bomp say Bomp say Bomp?  Hu put the ram in the rama-lama-ding dong.  Well President Obama did want to shake his hand.

 Salve Lucrum.

Sunday, January 23, 2011

23 January 2011 Barron’s Review and The Week Ahead

BAGAKOAA 23 January 2011 Barron’s Review and The Week Ahead
We are going to shoot for two post today as there seems to be a bit to cover. (We ran out of time so you get one.) We missed our golf buddies this weekend but had a great neighborhood trailer trash cookout Saturday night as a couple of us sprang for new Webber grills. While our next door neighbor like us cooked burgers and dogs another neighbor could not even afford to have the meat ground up. He called the hunks of meat “Steaks” with some Frenchie name like feelay meegyan. Vey uppity I would say. Anyway of the four homes hit by the mudslide, 3 have qualified for the big flamingo prize because they have actual trailer in front of their home. It was a good time had by all. 

(Don’t feel too sorry for us as we went through 4 bottles of decent wine. 3 of the 2007 Lodi Brazin Zinfandell and I Gresyson 2007 cab)Anyway, yesterday morning (before the boy’s basketball game-he got two rebounds and one foul-we stood up and applauded when he got his first foul of the season-surrounded by Catholics everywhere as well as few Episcopal schools-standing a applauding for a foul was probably not appropriate) we cracked into our Barron’s Magazine. Another great issue. As we mentioned last week the writers seem to be walking a fine line between exuberant enthusiasm for a great run in the market over the last two months, and the inevitable correction waiting around the corner. Nearly every bullish article was tempered with comments about historical reversion to a more sedate S & P or Dow. Or they point out that some portion of this current level is support by The Feds Blue Smoke and Mirrors of the printing press and QE II.
Alan Abelson kicked things off with his piece Street Crime about insider trading.

After two full columns on that issue, he finally makes a statement about the market saying that The Fed is providing a lot of the wind (or air) under the wings of the market kite. He suggests and we agree that efforts by the Fed were necessary and most probably helped consumer sentiment. Abelson guesses (and he never works alone so the guess is probably well founded) is that there is “several trillion dollars in market cap” propped up by the feds efforts. Ok for the remedial reader, market cap is the current prices of the stock multiplied by the number of outstanding shares. Now what does that mean? The S & P 500 captures about 75% of the US Equities market and its total market cap is about 11.6 trillion dollars. Follow where I am going? If that 11.6 trillion is only 75% of the estimated total market, than that total market is about 15.5 trillion in market cap. So even if we use a conservative definition of several trillion dollars as meaning 3 trillion, that means we have a 19.4% ethereal support to market prices. Let’s say several trillion means 5 trillion. That would mean we could be looking at a 32.2% adjustment.
Maybe someone did that math last Thursday and that is why we have seen this rally cool of and not continue for an eighth week.
Michael Santoli jumps right in and announces that its time for “A well-Timed Dip”. He also sites the low volume, low volatility “sleepwalk” as he calls it to new high may very well be Fed fluffing. He explains that the Market (in this case I believe he is referring to the big players) we mesmerized by the Fed dedication to fixing things that they bought into the market without much thought about how the ride would end. Unfortunately and as Santoli notes, the market has its own feeding frenzy that has no basis in logic or fundamental research. It becomes the bigger fool theory.
Then he shifts gears ands gives us what looks like a fairly attractive play in the gas and oil sector. DO YOUR HOMEWORK-WE DO NOT OWN ATPG ATP Oil and Gas engages in the acquisition, development, and production of oil and natural gas properties in the Gulf of Mexico, the United Kingdom, and the Dutch Sectors of the North Sea. If you are a Motely Fool subscriber you can see a though explanation of why a long term option strategy might be an interesting all or nothing play for this stock If you can’t access it let me know and I send you and abbreviated summary. The Santoli article does a great job of laying out the reward side of this bet, but not the risk side. It could be a great play.
Jay Palmer does a great piece of NVDA, the hot chip maker. In the article he mentions a joint project with ARM Holdings (we have pimped them here and did quite well with the pick) which revolves around a GPU (Graphics Processing Unit) integrated with an ARM Holdings CPU (Central Processing Unit) called TEGRA. Palmer points out that the technology is important enough that INTC Intel has dropped its legal attacks against NVDA and want to make nice. As Palmer closes with, “If Intel can’t beat them, than no one can.” Great article and it really shows we bailed from ARMH a bit early and missed the boat on NVDA. DO YOUR HOMEWORK WE DO NOT OWN NVDA but after a little research, they look like they could have another 18-20 % on the upside. The recent (last week) pullback looks like a buying opportunity. The 22 dollar stock appears to be a 26-27 in the making. I can’t tell if the ARMH/NVDA TEGRA chip has been factored into the 9-12 million new iPhones that Verizon will be moving. We would assume so but can’t really tell. Looks like linkage to me?
Another GREAT article was by Lawrence Strauss and it deals with stock buybacks ZZZZZZZZZ, no don’t fall asleep on my yet. If you have read my blog for any time now, we pontificate about the holy trifecta of shareholder’s value. Dividends, paying down debt and stock buy backs. Of course all of those come from free cash flow, or at least should. Strauss’s article explains how some companies (possible most) are really bad at buying their own stock. He cites a couple of books a serious investor might want explore to explain what is a good value for a company to buy their own stock. He cites Koller’s, The Four Cornerstone’s of Corporate Finance (on the way I will let you know how it is) and Rappaport’s, Expectations in Investing. Strauss provides a nice chart of large caps who have done buybacks and how their stock have performed. Get this issue as this article is a good read.
Jacqueline Doherty takes all the wind out of CRM which provides customer and collaboration relationship management (CRM) services to businesses and industries worldwide. Blasphemy, does she not know that CRM is king of the cloud? The F 5 stock crash last week turned some of those clouds to rain drops and Doherty is suggesting that CRM could cause a flood. I would have to agree that 2012 P\E rations of 240 remind me a lot of the era, but there are a lot of smart folk looking at 170 for this 132 dolly stock. DANGER DANGER Will Smith. Do your homework. WE DO NOT OWN IT.
Side Note: In Barron’s recently there have been adds for some relative new ETFs for playing the VIX. VIXY and VIXM are two ETFs offered by ProShares that play the CBOE Volatitlity index of the S & P 500. You might look at them as a way to play the probable adjustment to the market.
The cover this story is about Mr. Buffet and his billions. Andrew Bary was busy this week as he contributed several articles but this one is especially interesting as it address the fact that Berkshire Hathaways BRKA has not moved in about a year (Currently about $122,000 a share.) and he is sitting on about 50 Billion in cash. Bary explores the possibilities. Great read.
In essence, this is yet another great issue. The sentiment is positive but almost all the authors are hearing footsteps.
The Week Ahead.
We are diving into earnings seasons and while it’s a bit early to call it seems to be off to a good start. There is some economic news ahead this week and it will impact the market as it usually does. Monday is quiet, but Tuesday we have some retail reports that should so softness and it will be blamed on weather. We also have an important consumer confidence report on Tuesday. This indexed ration has been stuck in the 50-60 range since the first quarter of 09. The guess is 54.3. Thanks to some positive news in the market place, Obama playing nice with business, and a very slowly recovering job market, we thinkest a better number than 54.3 Let’s look for 56.
Wednesday we have new home sales. The experts are looking for 300,000. The time frame covered was wicked with rain and snow so I am thinking miss. 285,000 is my guess, but a correction and jump next month. If you are in any energy stocks, keep an eye on the petroleum report on Wednesday. I am guess demand is up and supply is down. We had two pipeline issues in North America and that will cause some tightening. Oil should go up and CVX should too. No surprises from the Fed on Wednesday.
Thursday we have durable good orders and jobless claims. Look for a recover to 1.5 on the durable goods order. That is the guess and we can’t disagree. Maybe it’s a little low and we might see it a little higher. Don’t look for any surprises with the jobless claims number. It will hold in the 405 thousand range.
On Friday we will see what inflation has done to the GDP. The experts have it going up from 2.6 to a 3.5 annual rate. We are thinking of 3.1%. That should ball the meaningful data points this week. As usual, keep an eye on the ground for Euro news and developments in China. We are guessing a flat to slightly up week in the market with lower volume.

Salve Lucrum

Saturday, January 22, 2011

21 January 2011 Is The World Flat

BAGAKOAA 21 January 2011 Is The World Flat

We have been sailing along for seven weeks now and it appeared as though that the consensus was wrong we could keep sailing and never fall off the edge of the world.

Overall, we had unrealized gains of 11 or so % since the flash crash in May and until recently though it could on till the first quarter of 2011. Well that could be this week or 9 weeks from now so we still think we are right. We had 4 people today say, “Hey when in this correction you keep talking about going to happen?” Well I don’t really know, but I am confident it is soon (A finance term for 1-12 weeks. Actually I learned that from some contractor friends of mine.)

We really thought we were on the cusp, but GE messed that up today with a glowing quarterly report.

(Ok I’m going to take you for a little ride here but you might enjoy it. We do not own GE now but we have had our share of experience with it over the 24 years of investing. We averaged our cost in 09 all the way down to about 12 dollars a share and though we were geniuses. Then we read a couple of books about valuing stocks like Security Analysis by Graham and Dodd 6th edition and The Intelligent Investor. Then we realized that this 12 dollar stock we were so proud of was actually worth about 6 dollars a share on a good day. When GE made its way back to 12.72 a share circa May 2009, we were out of there happy to break even. The stock started climbing and we would visit the SEC filings which really confused us as the under performance of NBC, and the toxic assets of GE Capital was saying the 6 dollar stock priced at 12 dollars was selling at 15 dollar was now worth 5 dollars. We chose not to play as it did not make sense. Fast forward about 18 months to today.)

So we had about 7 minutes between contractor visits and I saw President Obama at a plant in Schenectady NY. OK I was born it upstate New York and there are only a couple of reasons a President would visit. To run for office or stay elected. GE is really the only big thing there. As Bloomberg was showing the podium with the Presidential shield it was revealed the factory the President was speaking from was the GE factory. The GE reported their earnings and it was a blow out of blowouts. It was the best quarterly earnings report in quite a few years. And what a coincidence that President Obama was there with in minutes of the quarterly earnings. I even said to myself (naively) “Can you imagine if their quarterly report sucked?” Hey wait a minute. The President would not have wanted to be within 100 miles of that place if GE report earnings in the toilette and they would be laying off 500 employees. Come on somebody had some insider information on this one. I really had been taken. Now as you know I expected GE to beat, but with the sale of NBC and most of the toxic wasted of GE Capital removed, it is actually starting to look like an 18.00 stock. It closed today at $19.74. So my new investment strategy is to see Obama’s travel schedule as published by the White House.

It late we got to get on home.

It really is late, but we just finished a glorious meal at Hanna’s. My buddy Dave stopped by and visited even though he had 134 groupies to visit.

We need a Hanna’s fix. Life seems better just because we saw our second family at the joint. I get depressed when I walk in my wine room so I have been drinking Hanna’s wines and we have hooked on to a great little Zinfandel which I can not remember the name to. We’ll get it for you tomorrow. If you line within a thousand miles of Orange County, you gotta visit Hanna’s.

So what moved the number today?

Europe and GE kept everything from falling apart. GE had a great quarter and that was s huge support to some decent news in Europe. GE and UNP beat as we had indicated even though UNP margins got squeezed a bit due to fuel costs. That is a good thing as the reason their margins got squeezed is the reason why shippers will be choosing rail over road in 2011. Good news to us option holders. Volume was rich because of GOOG GE BAC and it was options expiration day. The IBD rating did drop to a B-, a day later than we expected. If it goes to a C+, keep an eye on the exits. Personally I do not think the correction will be jolting. I think we will all feel like frogs in the beaker. The water will warm and it will feel like a Jacuzzi and then it will be too late to jump out. Keep an eye on the subtle correction taking place.

Homework Assignment

Check out ADM Archer Daniels Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally.

They had a good earning report and one of their primary products lysine had a price increase by one of their competitors allowing this important product sector to expand for ADM. This protein animal feed is in great demand in Asia. This will bode well for the company. Look for the FDA to approve an ethanol blend for cars built after 2001, a big plus for this company. DO YOUR HOMEWORK but this is looking good.

OK I am going to wait in the driveway for my next issue of Barron’s. Good night boys and girls.

Salve Lucrum

Thursday, January 20, 2011

20 January 2011 So Many Questions Google Has 67% of the Answers


20 January 2011 So Many Questions Google Has 67% of the Answers

Whacky day in the market. Didn’t watch it too closely today, but it was headed down even though we had some decent economic news. Yes we got the jobless claims and the housing figures correct. The Philly Fed number while positive was a little disappointing. We did expect to see the accum/dist rating from IBD to drop but it did not. This would be the third day of distribution (aka selling) in the market. Look for a down grade tomorrow.

Tell me, Hu are you? (Hu are you? Hu, Hu, Hu, Hu?)
'Cause I really wanna know (Hu are you? Hu, Hu, Hu, Hu?)

While we did not play in the market today, we did get a few moments to glean The Journal and IBD.

On page C 13 of Tuesday’s Journal there was a little article buried in the back of the Money and Investing section. China Net Seller of US Bonds. Now we would have thought that would have been big news and I quote: “China's appetite for Treasurys is closely tracked by market participants. There has been fear that should China sell Treasurys significantly, borrowing cost for U.S. consumers and business would jump, hurting the U.S. economy.” This trend should be watched very closely.

No I'm Sorry Hu, there must be a misunderstanding, I used to run the county but not any more.
 It was also interesting to note that CCB, China Construction Bank is opening an office in Manhattan to sell shares and launch IPOs to residents in NY.

And in an article about the IEA, The International Energy Agency (London), they are putting pressure on OPEC because global demand is increasing rapidly, noting that in November China broke the 10 Million Barrel a day threshold for the first time. Global usage estimated for 2011 is 89.2 million barrels a day. China is taking a bigger share everyday.

With those little sound bites and the concern they will be raising interest rates to cool off their in excess of 10% growing economy, should our little greenback be worried. I will let you decide. You might ask pensioners in California or Illinois what they think?

Yummy Yummy Yummy I Don’t Have Root Beer in My Tummy

Breaking news today, YUM brands is going to sell A & W and Long John Silvers to focus on Taco Bell, KFC, and Pizza Hut. My guess is a good move.

Irony at its best.

We are using our slowly shrinking bully pulpit to tell China how to manage their currency and threaten to impact trade is they don’t do something about human rights issues in the same week we eased travel and currency exchange transfers with CUBA. Raul Castro must be thanking his supreme being. We are now allowing a limited transfer of monies to CUBA. We hope the powers to be realize that non-black market us currency is subject to a 20% income tax for the receiver, plus an additional 10 % exchange fee, and most of the non-black market moneys are used to buy product at state owned stores. The easing should result in an additional 3.2 billion US dollars getting into the economy and most of that will end up in the Castro Regime.
"Big Deal Son, the dollar is worth diddly squat."

Oh Yeah Google

Google had 67% of all the internet searches in the month of December. If you were wondering, that would be a total of 16.4 billion searches. Amazing. Speaking of big numbers, we had 114 visitors to the Salve Lucrum blog on Tuesday. We have been posting our link on and had a huge intake of people and had a few start following the blog on If you have not tried it yet I suggest you kill a few minutes there. It’s like Twitter for your portfolio. We have scored on two ideas posted there.

Salve Lucrum