Monday, February 21, 2011

The View From Fantasy Land

BAGAKOAA 21 February 2011 The View From Fantasy Land

It has been a great long weekend as long as your zip code does not put you in Egypt, Iran, Malta, Yemen, Madison Wisconsin, Libya, or Indonesia. (We saw a few eyebrows raise with Indonesia. Just wait and remember this post.)

Our zip code puts us in Orange County safely 21 miles from Fantasy Land, but living like we are well with in the bounds of the Magic Kingdom. While the world was experiencing the cost of freedom, democratic metamorphosis, and long over due regime change, we scrubbed mud off about 150 bottles of wine, played golf with the boys, enjoyed a movie (True Grit) and devoured Barron’s and the Week ending edition of IBD.

This week in Barron’s we again see them put very positive spins on a tenuous situation. Yes, the S & P has doubled since its March 2009 Low. (And can you believe there are people asking me if this is a good time to get in the market.) The Dow is up 11 of the last 12 weeks. There is money coming out of bonds and emerging market accounts and being put in US Equities at a rate that reminds us of 2006. The market is ignoring some underlying issues and it gives us confidence to know the correction is a distinct possibility and is probably going to be bigger than we’d like as long as this euphoric trend continues.

The uneasiness in the middle east (Keep an eye on Asia everyone.) is playing havoc with Oil and Gold Prices. Gold broke $1,400 an ounce today or I heard on CNN. Everyone seems to be ignoring the obvious but rationalized increase in commodity costs. There is change in the wind.

A Governor in Wisconsin is attempting to correct the evils of several decades of hedonism by trying to break collective bargaining agreements in order to address pension reform, competency standards, but most of expense control. Gee we thought they only did that in countries where they were going bankrupt, like Greece, Ireland, Portugal, Spain, but not in Wisconsin. Deciding whether the Governor is right or wrong in his tactics is for others to judge. But you got at least 14 other Governors watching this dance closely as well as one President who will find himself in a lose lose proposition at any moment. If he supports the break of collective bargaining, he and his party stand to lose more than $220 million in Union political contributions. If he supports the Unions efforts of protectionism, he will not gather the middle of the road democrats and independents who realize that since Ronald Regan, we have spent ourselves into a corner and need to do something NOW.

This week in Barron’s

Because I don’t always get times and dates correct this weekend I had an extended visit with Barron’s and IBD. Here are some of the highlights and then we will get to the seek ahead.

There was special supplement in this weeks Barron’s. The Top 1000 Advisors is an annual insert they do to tell you who the top FA (Financial Advisor’s) in your neighborhood might be. More importantly they share some of their picks and strategies. We will not spend a lot of time on this, but do recommend you grab a copy as it is good reading. Most see opportunities in emerging market and a year end upside to the stock market at 10-30%. (We prognosticated 10% back in January and we have already seen 5% of that gain so far.)

In the front page section was a small little paragraph about some positive numbers in the mall real estate market. This is good news to those who were worried about the commercial real estate bubble. There was a positive article about NetFlix. (Though they did glide over the fact they had a downgrade this week.) They also introduced up to another interesting stock AGU Agrium Inc., together with its subsidiaries, produces and markets agricultural nutrients, industrial products, and specialty products worldwide, as well as involves in the retail supply of agricultural products and services in North and South Americas.

Barron’s also pimped CVX Chevron (WE OWN) stating that there are some 110 dollar target prices out there and as oil continues to rise those estimates may have to be moved upward.

We will admit we had to read Alan Ableson’s column twice this week because we just did not get it. We went on little ride with him talking about the middle east, Bernanke, whipping a stock called Core Logic then pimping Intel before announcing the chip inventories are in an overstocked situation? What does that mean? If anyone read and understood the message, drop me a note please.

Santoli did a much better job of explaining the market is hot, perhaps too hot, but that the prices of stocks are actually starting reflect those things that stock prices should reflect, fundamentals, growth, and earnings. It is a good article.

The Week (What’s Left of it) Ahead

Tomorrow we have Consumer confidence reporting. The consensus of this index is 65, up from last month. We think we will be higher than last month and even higher than the consensus, but not much. 66 is our guess. This will not be enough to move the market. My guess is that tomorrow and most of the week will be focused on Libya and the rest of the middle east. Look for the VIX to head up. (A good thing as we own Gobs of January 2012 Calls of those things) and look for GLD to head way up. We are guessing we will take some great profits tomorrow on our weekly GLD options. We’ll let you know.

Wednesday is the biggy. Existing home sales. Last month we saw a strong and surprising jump of 12.3% to 5.28 million untis. The guess is we will see a slight drop off of that figure. We are thinking we will see a big drop off of that number. Look for 5.1 and a 1.5% hit to the market for the day, worse if things get goofier in the middle east.

Thursday will see new home sales, jobless claims and durable goods orders. Two out of three will disappoint. Any guesses? Durable goods will be OK the other two will drive the market down another point.

Friday GDP will report and probably beat expectations, but the mood will be set for a negative finish on the week. Look for the S & P to close down 2.1% next week to $1,312. Look for the VIX to creep up all week and gold break through $1,425 by the end of the week.

PICK of the Day.

This one was easy and it jumped off the pages of IBD right at me. Put a put on ROVI. Just kidding although it might be a good bet. Put a put on GMCR Green Mountain Coffee, Just kidding again, but worth watching.

ST Sensata Technologies Holding B.V., an industrial technology company, engages in the development, manufacture, and sale of sensors and controls worldwide. It produces a range of sensors and controls for mission critical applications, such as thermal circuit breakers in aircraft, pressure sensors in automotive systems, and bimetal current and temperature control devices in electric motors.
The company's primary products include pressure sensors, force sensors, position sensors, motor protectors, and thermal and magnetic-hydraulic circuit breakers and switches. It develops solutions for specific customer requirements or applications across the appliance, automotive, heating, ventilation, air-conditioning, industrial, aerospace, defense, data/telecom, and other end-markets. The company was founded in 1916 and is based in Almelo, the Netherlands.

I really can take little credit for this one. IBD did a spread article on their New America Page where they highlight companies that are doing well but poised for something special. The story is great and highly recommend you get the Tuesday’s Issue (Covering Friday’s action) and read about this company. In a nutshell they make sensors for darn near everything and they do it efficiently and profitably. It generates income form every corner of the globe, is buying undervalued sensor companies and has quite a bit of cash.

Earnings look good though they did miss one of their last 4 quarters which gives them a red eye in IBD ratings. Their chart is definetly sideway patter indicating a nice base forming at about 31 a share. We are putting this on the watch list and will look for a break out above 32 on large volume. DO YOUR HOMEWORK. We have not pulled the SEC filing yet so just keep it on the watch list and we’ll tell you if we get in.

Salve Lucrum


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