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


Post a Comment

<< Home