Monday, March 21, 2011

21 March 2011 Tuition for Lessons Learned


21 March 2011 Tuition for Lessons Learned

We had another up day today, but before you get all excited, volume was nearly non-existent, so we can’t put in the category of an accumulation day. We are still sittin on ready with our cash to either buy when the buying gets good or to give to our plethora of contractors who are just waiting to add the next item to our every growing punch list.

If you read the blog a week or so ago about lesson’s learned we explained about options and the fact that we had bought them way out too far. Friday we had our day of reckoning. We had 7 call options expire worthless. OUCH! While we won’t tell you the dollar amount, we can tell you the damage to our year to date realized gains. Again, this is money, cash, not still in the account. We had been enjoying an 8.7% year to date gain until Friday. As you know Friday was option expiration day

(Actually it was quadruple witching day when contracts for stock index futures, stock index options, stock options, and single stock futures all expires.) so that means those options that were about to expire expired worthless. The result was a stinger day to the Salve Lucrum Portfolio. Our year to date realized gains dropped from 8.7% to 7.01%. Now a 1.7% drop does not sound too bad, BUT IT AIN’T YOUR MONEY!

Now another thing to keep in mind about quadruple witching day, is we have to be real careful counting Friday as an accumulation day because much of the volume was driven by the option settlements. (I may have lost a few of you there, but if you want a detailed explanation, please drop me a note at Just don’t assume that a good high volume day on a triple or quadruple witching day automatically means an accumulation day by definition.

Pin action in the Salve Lucrum account.

We had entered our RAE order last night, but my buddy Ben know a little about the info we shared from the SEC filings. There was a merger recently and it looks like our upside was taken out of play above 2.00 a share, so we pulled the plugs on all of our limit buy orders at $1.75. Thanks Ben. We did add to what appears to be a good set up for EBIX and SMTC. Again, we would not ordinarily be swimming upstream, but like both of these stocks so we are buying them on the way UP. We are buying cheap insurance with some June PUTs.

The fact volume was so light today indicates the big girls and boys are sitting on the side lines. You can’t really blame them with all the possible and apparent volatility out there. Underneath all the uncertainty is a certainty. We have reset the clock for the US government to stop functioning another 3 weeks. Very quietly, President Obama signed into law a 3 week extension of our debt ceiling so our buddies in capital hill have find the 50 Billion dollar gap between the DEMs and GOPs budget proposals. This last extension did have a 6 Billion dollar hold up in appropriations.

To provide some perspective of that 6 billion dollars, last week we went though the drive through at McDonald’s and we dropped a nickel of our change.

That nickel is more of a percentage of our net worth than the 6 Billion is to the government debt. So you must now guess whether we have a very small net worth or if the government carries a lot of debt. I will give you 14.2 trillion guesses.

That is it for tonight. Here is a question for you. Assuming we post tomorrow, Wednesday will be a note worthy post. Any guesses why? Drop me a note.

Salve Lucrum

Sunday, March 20, 2011

20 March 2011 Ignore That Man Behind The Curtain


20 March 2011 Ignore That Man Behind The Curtain

No I am not talking about Hilary Clinton and the intervention in Libya, I am talking about stock pimping. As you can imagine we are on every kind of e-mail and snail mail list you can find about investing. Almost every week, we get a stock tip from (Don’t bother is pure stock pimping at its worst.) and even though I know these are purely speculative and usually done just to bump a penny stock the author and his friends are already in, they do get my attention from time to time.

This week was no different. It is a gold stock. It wouldn’t be right for me to mention the name of the stock GUNPowder because this newsletter has spent months following the secret little company GUNPowder and that is why I can’t divulge it’s name GUNPowder to you. What I can tell you is the stock is selling for about a buck and the sales job the newsletter is doing is quite impressive.

Well as we read the 16 page newsletter for the stock, we decided to let our little Brindle Caine Terrier down on the floor and ToTo went running to the booth near the stage with all the fire and smoke and Jumbotron pimping the stock. Toto went behind the curtain (Did you know the real ToTo actually broke its leg filming WOO when of the witches guards stepped on its leg, But I digress.) to the SEC filings page and there was the quarterly earnings report for GUNP. Guess what? They have no sales, no profit, it appears to be a holding company for some guy in England. They changed their name in 2008 from Business Service Inc. to GunPowder Gold.

My point is, when the wizard manages to get your attention, don’t forget to let your dog down on the floor and start sniffing around. You may actually find the man behind the curtain and save yourself a lot of frustration and embarrassment.

Barron’s this week.

The cover story was and advertisement for investing in Japan. The cover story by Leslie P. Norton does a great job of explaining why Japan based investments were cheap before the tragedy and even cheaper now (dah!) but should be considered for the mid term to long term investor. (What is the half life of a bad investment?) They discuss 26 or so equities which are “unloved” and with time should recover nicely. You would know about half of them. One ogt my attention Takeda Pharmaceuticals, but it appears it is not traded in the US. (Interactive Broker customers might have a shot at it. DO YOUR HOMEWORK.)

This week, Alan Abelson redeemed himself with us by providing and interesting holistic view of the doings in Japan. The 40,000 foot point of view was helpful in putting together some of the pieces of the currency, sovereign debt issues, equity issues nuclear issues. It was a good read. (As I mentioned, Forsyth’s article concerning the Yen and the G-& intervention was phenomenal. We could see that being case study’s at Wharton and Harvard.)

Santoli, one of my favorites explores the many notions that this correction could be done. He reminds everyone that the bulk of big investors and analysts were looking for a 507% correction and we now have that. We were pontificating about a 5-20% correction under normal circumstances. Those guesses of a 5-7% correction were also under normal conditions. We don’t think this is over YET. Let’s see what happens in Japan and Libya and points east and look for a couple more day’s of positive accumulation before we get back in.

The Week Ahead

There are six key economic data points this week. But before you go back to your Google homepage and look for something more interesting to read, we will not bore you with our take on Existing Home Sales (Down), New Home Sales (Down), Durable Goods Orders (UP), Initial Jobless Claims (Down), GDP Figures (UP), and Consumer Sentiment (Down), because all of these will be back round music to Libya, Japan, Yemen, Bahrain, US Budget politics, and European Sovereign debt issues.

We will expect to see the major market down another 2% this week. Look for the S & P to end around 1,253 (We understand that 1,250 is an important resistance point) and the Dow to finish at 11,620.

Pick of the Day

Now we have been warning you this in NO TIME TO BUY. 75% of the impact on a stocks price is market trend. We are in a correction. However is the market trend is due to a specific cause (Oil prices, Tsunamis, social unrest, and Nuclear calamities) that correction can be your friend if you find a good stock that will benefit because of the bad news. We may have found one.

RAE Systems Inc., together with its subsidiaries, develops and manufactures multi-sensor chemical and radiation detection monitors and networks for oil and gas, hazardous material management, industrial safety, civil defense, and environmental remediation applications. It also offers safety, environmental, and personal protection monitors and equipment; and portable and fixed use safety products to the mining industry. The company's sensor and measurement products include photoionization detectors that are used to measure volatile organic compounds, toxic chemical warfare agents, and toxic industrial chemicals; catalytic bead pellistors, which are used to detect and measure combustible gas; and non-dispersive infrared sensors that are used to measure carbon dioxide and hydrocarbons. These products also consist of electro-chemical sensors, which are used to measure oxygen and toxic gases, such as carbon monoxide and hydrogen sulfide; solid polymer electrode sensors that are used to measure oxygen; and solid-state scintillation detectors, which are used in neutron and gamma radiation. The company's integrated wireless products consist of AreaRAE, a wireless-enabled gas detector, which provides transmission of monitoring information to a base station located two miles away from the detectors; and MeshGuard that has the ability to transmit radio data in and around metal structures that are difficult for clear radio transmission. Its radiation products include Gamma RAE II R, NeutronRAE II, AreaRAE Gamma, AreaRAE Steel Gama, and DoseRAE that are used in handheld instruments to detect low levels of radiation on a real-time basis, as well as dosimeters, which are used in nuclear power plants to protect personnel from radiation exposure. RAE Systems Inc. sells its products through its sales force, and a network of sales representatives and distributors worldwide. The company was founded in 1991 and is headquartered in San Jose, California.

This is a small cap stock with little debt and little income. It appears to be below the radar, but its accumulation rating is sliding upwards. It sells for under $2.00 a share. From reading the SEC filings, there is some information implying aht a revocable trust may be attempting to take the company private. Beyond that the company looks well positioned to drive some sales and apparent profit in the Japanese market. Hysteria may push products outside the Japanese market.

IBD has some positive ratings and as we mentioned it looks as though some players MIGHT be taking positions in the stock. We are getting in Long below 1.75 a share. We will look for a double by fall and then reevaluate. If the “going private” action carries, we could loose about 75% of our value. This is a speculative play. BE CAREFUL.

Sometimes a picture does not tell the whole story. In a quote earlier today, President Obama said and I quote, “Qaddafi has lost his legitimacy as a leader.”

Salve Lucrum

Saturday, March 19, 2011

10 March 2011 When Did That Happen?


10 March 2011 When Did That Happen?

It is Saturday so you know what that means. The new Barron’s is here. I usually wait in the driveway for my weekly does of capitalistic propaganda. Today it was different. I had a higher calling. My son Jack, had a weight lifting camp for which he was signing up. Now last night we had him at Basketball practice. This morning, while I proudly watched him work his way through jerk presses and bench presses and eventually out to the field and doing football training, it hit me. My son is a Jock. OMG. When did that happen?

We did eventually make it to the house. (I asked him not to sweat on my leather seats.) And there was my Barron’s magazine. We have only skimmed it as we watched the news a bit to find out France was the first to invade Libya. Did I just use “invade”, “France”, and “first” in the same sentence? It felt kinda weird watching the news and not seeing The US leading an assault. As a world leader, it seemed a bit strange.

If the markets were open, we feel it would be very volatile and the price of oil would be shooting up. We are going to watch this close and try and make some observations you can make money on this week. We will try and get that published by Sunday evening.

Two things we do want to share with you today. First is an update on the CRONASTICS CHART.

This is our homegrown chart using the IBD accumulation/distribution ratings for the DOW and the Nasdaq and how many companies on the NYSE are above their 200 day average. We boil the numbers and ratings down and created this chart. What you know is the continued fall for the week, which should be expected in light of the week we had. However, note the very subtle shift in the last two data points. The degree of the shift is beginning to taper just a bit. Visually and mathematically the drop seems to have slowed. We played with the numbers and it is very difficult to hot zero. We are thinking that when the chart shifts to an upward direction, we should be seeing more accumulations days than distribution days. We will wait and see.

The other item we felt compelled to share with you is a great article in Barron’s. If you have an interest or are just curious about foreign currency, Randall W. Forsyth does an amazing job of explaining the mechanics and impact of the G-7 interventions to stabilize the Japanese Yen. He does so in a way that is easy to understand, informative about global money flow, and how these things impact sovereign capital markets. This is a keeper, not just for this crisis, but to understand how and why central banks buy and sell other countries debt and keep or sell other countries currency. This is worth the price of admission this week.

We will wrap up our review of Barron’s and see where the oil plays might be before Monday morning.

Salve Lucrum.

Friday, March 18, 2011

18 March 2011 What A Difference A Day Makes

BAGAKOAA 18 March 2011 What A Difference A Day Makes

We did not race home this morning to check the market as we mentioned there is not much there to check. We did get in on the LULU puts and this morning moved a few of or friends into that position as well. LULU was down over a point today so we are seeing the downward movement we were expecting. We did break through that $75.50 mark, but we closed above it ($75.59). IF and it’s a big IF, we can break through the $69.50 range this could fall to a 35.00 price.

It was kind of a good day in a whacky way. It started out really hot because a mad man promised to stop shooting his fellow countrymen. Ok let’s believe him. Then we had some voices of reason concerning the nuclear situation in Japan. Then we had the G-7 (I always remember it as FIG JUK US In Canada France, Italy, Germany, Japan, the UK, the US, and Canada) step in and sell off some Yen to create a little support safeguard for their currency. Then some major global banking brain trusts identified that of the Japanese prefectures destroyed it only equates to about 5% of their total GDP. So the market was strong today and volume was 40% over the average so this is definitely an accumulation day. In the back round, we have the noise of a yet to be addressed debt extension that the parliament of whores in Washington has to address. We also have sovereign debt issues in Europe lingering and the word deflation has disappeared from our vernacular and been replace with the I word, Inflation.

We are glad to see our first accumulating day in 14 trading days. We want to get back in the game, but we ain’t there yet. Give me about 4 or 5 more accumulation days in the next 10 trading sessions and we will be sittin’ on ready.

Lesson Learned

There I was in 1996-1997 and everywhere I looked I was bombarded by e-mails and pop ups from this new company called NFLX Netflix. Mail order movies. How corny was that. They ended up doing an IPO in May 2002 and raised some money. By that time I was not only an avid user of the service but was giving gift certificates to friends, family and employees. In the fall of 2002, we bought our fist position in Netflix and told several of my Stock Buddies (Long before the blog.) We all got in the $5-7 dollar range. In October 2003, I read an interesting article about Comcast and Cox offering a new service call onDemand. My gosh the very service that was causing all the angst for Blockbusters was now going to get clobbered by onDemand service.

I ran down the streets yelling “SELL, SELL, SELL.” After all how many times in your life do you get a triple.

All but one of my buddies sold and took their profit. The one who did not was not insightful they just forgot they had it. One who did sell it to this day reminds me that the stock went from the 22 a share to 35 a share then they did a 2 for 1 split. By early 2005, the stock was at a split adjusted 10 dollars a share. That was when my one buddy who kept the stock was really happy he had shown a 30% gain, not realizing that if they had put some stops in they could have made 320% gain in the stock.

There were several lessons on this stock. The first would be, don’t buy into a stock just because they are promoting the product or you are seeing the product everywhere. Had I done due diligence, I might not have gotten in as early as I did, In looking at historical earnings records and SEC filings we would have found a $7.10 entrance point on positive pricing and volume (that would be accumulation and funds were beginning to buy the stock in early 2003) on or around February 24, 2003. So we would have lost a little on the front end.

The real lesson learned was the sell transaction. I sold for two reasons. GREED and FEAR. GREED, because we had nailed almost 400% on the stock. FEAR, because another product was going to suck away the profits of the company. Had we been watching the stock, reading the quarterlies, reading the SEC filings and watching the charts, we would have stayed with the stock through the thick and thin (We will admit it would have been iffy in August 2006 and November 2008.), we would have had the stock up to and including the market melt down because the bad economy actually had a positive impact on the rentals of movies. Most of that business left Blockbusters and went the way of Netflix. In August 2010, Netflix announced plans to start streaming movies into our living rooms via several gaming platforms. The very reason we got out of the stock in 2005, was now a reason to look at the stock again.

If we had followed our newly found rules for investing, we would have gotten out of the stock at a very obvious resistant line of 206 as it was broken on March 1, 2011. Our gains would have been 1,471% over 7 years. That is about 210% a year. Lesson Learned.

Pick Of The Day

First off my anti POTD from yesterday while performing ok today in the market has some new light shed on it. There was a cover story in today’s IBD about the inventory shortage at LULU. While this is a good problem to have, the company is being forced to fly product in to satisfy current demand. This will impact Q 2 earnings negatively, so the PUTs seem like a good bet, but our trade was based upon longer term drop in demand because of the economic concerns of 5 dollar gas on disposable earnings. Tile will tell, but if you played the PUT strategy with us, watch it like you do a stock. Your stops might be a bit more leinient than a typical equity stop. Perhaps you look at getting out at a 20-30% drop.

So of all the stocks on our watch list, if we had a gun to our head and were told we had to buy one, CAT Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. It operates through three lines of businesses: Machinery, Engines, and Financial Products. The Machinery business offers construction, mining, and forestry machinery, including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. It also manufactures diesel-electric locomotives; and manufactures and services rail-related products and logistics services for other companies. The Engines business provides diesel, heavy fuel, and natural gas reciprocating engines for Caterpillar machinery, electric power generation systems, marine, petroleum, construction, industrial, agricultural, and other applications. It offers industrial turbines and turbine-related services for oil and gas, and power generation applications. This business also remanufactures Caterpillar engines, machines, and engine components; and offers remanufacturing services for other companies. The Financial Products business provides retail and wholesale financing alternatives for Caterpillar machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans and various forms of insurance to customers and dealers. It also offers financing for vehicles, power generation facilities, and marine vessels. The company markets its products directly, as well as through its distribution centers, dealers, and distributors. It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar Inc. was founded in 1925 and is headquartered in Peoria, Illinois, is looking like a decent pick.

Again we are in a market correction and even though we have had two up days in average volume ranges, CAT does seem like a nice position to consider. In the last 10 trading sessions we see 4 accumulation days and 3 distribution days. That is in a downward market, so the CAT is beating the trend, a good sign. In a news brief today (but we know we don’t buy because of new releases) their dealer network is indicating a 59% increase in revenue for the 3 months ending February. CAT has a lot of debt, but it goes with the category. The most negative things we could find were the challenge of integrating their three latest acquisitions into the CAT family (German engine maker MWM, locomotive manufacturer EMD, and mining equipment OEM Bucyrus). Please read the SEC filings as they are very informative and interesting. You know the big yellow cat like you never have before.

The play would be to look for one more day of accumulation with a new distribution day and catch and entry point below $106 a share. Put you stop in at 97.50 and look for $127 by mid June. Keep a special eye and stops in place for the April 26th earnings call. They should beat and if Owens (Chair and CEO) does not throw out any scary forward looking comments, you could see the 127 a lot sooner. DO YOUR HOMEWORK.

Salve Lucrum

Thursday, March 17, 2011

17 March 2011 Accumulation Distribution


17 March 2011 Accumulation Distribution

A couple of people did ask, so first off, the wine we had last night was a 2007 Roger Sabon Châteauneuf-du-Pape Cuvée Prestige. It was deep dark and delicious. This is an old world wine so it does not have the big over the top tannic structure of an old world wine. It was soft and layered, but was till a smooth chocolaty, earthy, smokey, and rich glass of wine. It’s about $45-50 retail and it is worth a lost in your collection. It will be better by next year and should pour well into the 2020s.

Today we had a little upwards adjustment in our market correction. This is not unusual and just as you see a sell off after three days of gains, there might have been some perceived buying opportunities today so people (And from the looks of the volume, some fund managers.) found some possible bargains.

In describing the action today with a good friend, we got into the discussion about accumulation and distribution. On almost any given day in the market there are only 5 categories of market movements, and it is really important to identify them. Why? BECAUSE 75% OF A STOCKS PRICE IS DETERMINED BY THE MARKET OR SEGMENT TREND. The trend is your friend. Write that down and memorize it. Here are the 5 type of days in the market. We will look at the Dow because everybody talks about the DOW.

There is the up day with heavy volume. Take a day like September 17,2010. Look at the chart below.

You can see the big spike circled. The horizontal red line on the bottom is the 50 day average volume in shares traded. When you see the colume go 25% above the volume average you can almost guarantee it is the big boys and girls buying or selling. When the market goes up on big volume like September 17, It is called an accumulation day.

The next scenario is the market is up on light or below average volume. In the chart below you see December 21 and 22, 2010.

You can see both days are recovering from a couple of sell off days. So the market was up but there was no “conviction”. Apparently none of the big boys wanted to join in the pre-Holiday festivities so my guess would be it was retail traders like me cleaning up their portfolio before years end.

The next set up would be little change in the market number up or down on average volume. We have couple to point out on the chart below.

September 29, 2010 as it was down less them .2% and November 19, 2010 as it was up less than .2%. These are the epitome of sideways days.

The next scenario is the market being down on light or below average volume. December 27, 2010 (circled) below, had virtually no volume on a slightly down day. That is typical of the week between Christmas and New Years. This year was especially bad because of the nasty snow storm.

Then to round out our scenarios, we have the days we all dread a big down day on heavy volume. This is called a distribution day. Below, fresh in our memories is the 16th of March 2010.

That is a picture perfect distribution day. I have marked 10 distribution days in the last 18 trading days. (The little hash marks on the Bottom of the page.) That is not a good sign, but you can see what the market DID after about 5 distribution days (March the 5th) the market was only down about 2% from its high. We called the rally over and got out on the 7th of March which helped keep about 4% of the correction currently in place.

So when will it be over? I don’t know, but if you watch the numbers and the volume you can count the accumulations days and distributions and have a good feel for when you should brush off your watch list and get back in the game.

ANTI Pick of the DAY

Ok we are going to go out on a limb here and pick a real LULU. Yeah Lululemon is a really hot stock. Lululemon Athletica Inc. engages in the design, manufacture, and distribution of athletic apparel and accessories for women, men, and female youth in Canada, the United States, and Australia. The company's apparel products include fitness pants, shorts, tops, and jackets for healthy lifestyle activities, such as yoga, running, and general fitness. Its fitness-related accessories comprise an array of items, such as bags, socks, underwear, yoga mats, instructional yoga DVDs, and water bottles. The company sells its products through its retail stores; independent franchises; and a network of wholesale accounts that includes yoga studios, health clubs, and fitness centers, as well as directly through e-commerce. As of January 31, 2010, it operated 124 company-owned and franchise stores under the lululemon athletica and ivivva athletica brand names. Lululemon Athletica Inc. was founded in 1998 and is based in Vancouver, Canada.

Now this company has been making women look great in their form fitting exercise clothes and have been handsomely rewarded. However as we think gas is going to 4-6 dollars a gallon, and this line of apparel is truly discretionary with a capital D. They beat estimates yesterday but took a hit as forward looking statements warned about slower earning growth. Today was a 4% distribution day and if I was hedge fund or mutual fund manager and heard the weak forward looking comment coupled with the price of gas and other commodities, I’sd be taken some profit.

This has short or put written all over it, BUT do your homework. Shorting and putting is risky business. Make sure our facts are correct. The stock closed at 76 and change today. There is a significant reisitance line at about $74.50. This could easily correct to $65 a share. If you have some insomnia, here is some math to help you fall asleep. Don’t read this while you are driving.

Their current P/E ratio is 41.06. The market is closer to 14. So let’s do that math. Based upon forecasted earnings next year of $1.86 for the year and a market P/E of 14, the stock could sell down to 26 dollars a share. Ok, let’s not get crazy, after all their Price to Book value is 16.86 making the core value of the company $4.52 cents a share. Whoa! We are going the wrong way. Well let’s look at the target price average. Uh ho! That is 73.56 a share mmmmm. That is why we have our ANTI Pick Of The Day.

The market is in a correction, we have a CEO that is telling us things won’t be quite as nice as in the past. We have an overvalued stock no matter how you look at it. The best way to play this might be to buy some $75 April PUTs as close to $3.50 a contract as you can. Let’s see what happens.

Salve Lucrum

Wednesday, March 16, 2011

16 March 2011 Let The Sunshine In


16 March 2011 Let The Sunshine In

Ok, who knows who Gunter Oettinger is? He is a European Commissioner of Energy for the European Commission. Why is he important? He spouted some very inaccurate comments about the state of affairs in Japan with regards to their nuclear plants. It hit our market at about 7:00 am PST and we saw the market crunch from about 60 points (Dow) to 200 points down. It turns out his comments were for a prepared speech and not based on actually conversations with ANYONE in Japan. Now we are not pretending that all is well in reactors 1-4 at the Fukushima Daiichi Plant in Japan, but the comments implied pending Armageddon. Let’s just say it got everyone’s attention.

It was very interesting to run from our hotel to our home this morning in time for the market opening only to realize we had NOTHING to do. We checked some remaining PUTs and checked on our London Exchange account (Had to dump one there. As it had dropped below our 8% rule.) That was it.

Throughout the day we had no good reason to check on the account. We did take some time at lunch to adjust our 401K account. People if you have tax deferred accounts, don’t forget about them. Give them a little love and attention. We were 100% equities and we moved to 50% equities and 50% cash as of today. Last night we started a new book called “Reminiscences of a Stock Operator Illustrated”. It is about a guy named Jesse Livermoore who was a stock trader in the late 1890s. We will tell you how it goes, but so far it is amazing how some things never change.

At times like this it's fun to see what the other corners of the world are saying about the markets. Thank you, Terry for sending in some heads up from his FA in Australia. They too have gobs of volatility and when the information Terry sent me their market is about 4% off their highs (Now worse than that.) The overall message was not as fatalistic as we have seen on other markets. The portfolio referenced is very heavy dividend stock (You would love it Hutch.), but is due for correction and should be watched closely.

Let The Sunshine In

We have played with the white hot solar stocks in the past only to get sun burned. My fair skinned Celtic back round actually allows me to get moon burned, but I digress. Any who, we would not buy any equities at this moment in time, but thought it worthy to mention a few Solar Stocks if you are interested. We are not endorsing any of these, but with the events in Japan, investors will chase the need for greed into the solar market so you will see some upside in the likes of FSLR First Solar, Inc. designs, manufactures, and sells solar electric power modules using a proprietary thin film semiconductor technology. It also designs, constructs, and sells photovoltaic (PV) solar power systems. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. Its integrated solar power systems activities include the project development; engineering, procurement, and construction services; operating and maintenance services; and project finance. First Solar, Inc. sells its products to solar project developers, system integrators, and operators of renewable energy projects in the United States, Germany, France, and internationally. The company was formerly known as First Solar Holdings, Inc. and changed its name to First Solar, Inc. in 2006. First Solar was founded in 1999 and is headquartered in Tempe, Arizona.

SOLR GT Solar International, Inc. engages in the design and manufacture of manufacturing equipment; and provision of services for the production of photovoltaic (PV), wafer, cell and module, and polysilicon products worldwide. It offers chemical vapor deposition reactors and related equipment that are used to produce polysilicon to chemical companies and power generation companies. The company also provides directional solidification systems (DSS) furnaces and related equipment that cast multicrystalline ingots, which are used to make photovoltaic wafers and solar cells; and turnkey integration services, using third party wafer, cell, and module production equipment. In addition, it offers technology and engineering services for the commissioning, start-up, and optimization of its polysilicon equipment and technology; engineering packages and process licenses for the production and purification of trichlorosilane and silane; and hydrochlorination technology, which lowers power consumption of polysilicon production. Further, the company provides replacement parts and consumables used in its DSS furnaces and other PV equipment; and a range of services in connection with the sale of equipment, including facility design, equipment installation and integration, technical training, and manufacturing process optimization. It sells its products to polysilicon producers; and solar wafer, cell, and module manufacturers through its direct sales force, as well as through sales representatives. GT Solar International was founded in 1994 and is headquartered in Merrimack, New Hampshire.

TSL Trina Solar Limited, through its subsidiaries, designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. The company offers monocrystalline PV modules ranging from 165 watts to 240 watts in power output; and multicrystalline PV modules ranging from 215 watts to 240 watts in power output for use in residential, commercial, industrial, and other solar power generation systems. It also involves in the design and production of various PV modules, such as colored modules for architectural applications and larger sized modules for utility grid applications based on customers' and end-users' specifications. Trina Solar Limited sells and markets its products primarily to distributors, wholesalers, power plant developers and operators, and PV system integrators. The company was founded in 1997 and is based in Changzhou, the People's Republic of China.

JKS Jinko Solar Co., Ltd. operates as a solar energy company which manufactures and markets mono-crystalline and multi-crystalline silicon wafers. Its products are used for manufacturing photovoltaic solar cells and panels. The company was founded in 2006 and is based in Shangrao, China.

LDK LDK Solar Co., Ltd., through its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic products; and development of power plant projects. It offers multicrystalline and monocrystalline wafers to the manufacturers of solar cells and modules. The company also provides wafer processing services to monocrystalline and multicrystalline solar cell and module manufacturers; and sells silicon materials, which include ingots and polysilicon scraps, and other chemicals to produce polysilicon and solar wafers. In addition, it involves in the development of solar projects in Europe and China; and provision of engineering, procurement, and construction services in China. The company sells solar modules to developers, distributors, and system integrators. It has operations in the Asia Pacific, Europe, and North America. The company was founded in 2005 and is headquartered in Xinyu city, the People's Republic of China. LDK Solar Co., Ltd. operates as a subsidiary of LDK New Energy Holding Limited.

DQ Daqo New Energy Corp., through its subsidiaries, engages in the manufacture and sale of poly silicon for solar panel makers, photovoltaic module, and electrical equipment in China. It processes poly silicon into ingots, wafers, cells, and modules for solar power solutions. The company was formerly known as Mega Stand International Limited and changed its name to Daqo New Energy Corp. in August 2009. Daqo New Energy was incorporated in 2007 and is based in Wanzhou, China.

With that, we bid a good night. Had a great meal and nice bottle of wine with the nicest lady in the world at Hanna’s tonight.

Salve Lucrum

Tuesday, March 15, 2011

15 March 2011 Greed and Fear and Lessons Learned


15 March 2011 Greed and Fear and Lessons Learned

Now that most of our sell trades cleared our portfolio all we see are the bonds, the options and a couple of defensive positions JJG, DBA, GLD, SLV, and CANGX. We did take some tidy profits this morning on some PUT options on AAPL and AMZN. We checked out of WCRX after hitting our 8% down rule, but it remains on the watch list. We ante’d up for more EBIX after feeling comfortable that the down swing yesterday after a great earnings call was just a weird anomaly. (Perhaps a reverse short squeeze. NOW I swear I made that term up as I could not explain what happened to EBIX yesterday, but low and behold in March 2000 one of Cramer’s good buddies Herb Greenberg actually used the word to describe what happened to a stock called MSTR MicroStrategies.

I have to “steal” this for you as it is in the subscription side of The"No natural cushion: A week or so ago, when many of the MicroStrategys (MSTR) of the world were racing skyward in one of those "mothers of short squeezes," I mentioned that the trouble with short squeezes is that when the shorts are squeezed out, there are no natural buyers to cushion the fall.

A few readers weren't clear on the concept, so I tried to explain how shorting works: that short-sellers borrow shares and sell them and, if all goes their way, the stock falls and they buy the shares at a lower price and return the stock to the owner. That buying by the shorts provides the cushion when the stock heads south.

A squeeze, on the other hand, pulls the shorts out before the fall, as the owners of the stock demand that the borrowed shares be returned, forcing the shorts to buy stock and get out of their positions.

Still don't get it? Take a look at MicroStrategy yesterday, where the short-sellers had been squeezed out by the time yesterday's bombshell was announced: That the company had been booking too much revenue upfront. (You know the shorts were gone -- or mostly gone -- because short interest in early February, just before the stock made its final push upward, had fallen to 1.29 million shares from 3 million a month earlier. Short interest presumably dropped even more as the stock more than doubled since then.)

With no shorts left to buy, or to cushion that fall, the only surprise was that the stock tumbled only 62%, as sellers tripped over one another trying to be first out a very narrow door. (Add the heavily margined nature of many of these "yeehaw-squeeeeeeezzzzzeeeee-them-shorts!!!!!!!!!!!" message-board posters, as Cramer has been pointing out so well, and you get an all-out implosion. "The stocks are down 50% before you can get the first trade off," chortles one short-seller.)

Anecdotal evidence suggests shorts had abandoned such companies as Rambus (RMBS_), which dropped 19% yesterday after an item here raised some red flags; Lernout & Hauspie (LHSP), the voice-recognition software company known for its "momentum" press releases, which dropped 12%; and Terayon (TERN), a cable-modem maker, which was off 9%.” Please consider a subscription to the as there is tremendous value in their alerts and it is a great resource for investment education. Really!"

So we are sitting at 35.5% bonds with an average yield of 7.2%. (One is a tax exempt muni so the yield is a teeny tiny north of there when you consider tax adjustments.) Then we are 24.5% defensive ETFs and ETNs as mentioned. There is 4.5% in 31 call and put option positions. (Most of these are WAY down. Learn more in lessons learned.) Then we have 3.2% in equities. That leaves about 29.6% in cash.

Fear and Greed

There are only two things that drive a market in any direction. Any guesses? Earnings, earnings growth, low debt, cash, dividends, share buy backs, positive news? Nope. The ONLY thing that drives the market in any direction is Fear and Greed. “How cynical”, you might say. You can make money in the market without being greedy. You can just be well read and opportunistic and do quite well. You can be cautious and protect your capital.

Opportunity is just greed dressed up in a Tom Ford Tuxedo and caution is just fear clothed in an Elise Saab Mermaid Gown.

 (Whoa! Flash back to way too much time watching the red carpet arrivals at the Oscars.) But let’s face it, fear and greed is what make the market move.

If inflation were permanently pegged at 2% and all the nations of the world came out with the God, Allah, Buddha, FILL IN THE BLANK deity Bond fund guaranteeing 5% return forever, with in minutes someone would be looking for a way to hedge or leverage that fund with credit default swaps or ETFs in order to get 5.0001%. It is human nature.

Today we saw the face of fear. It may be justified it may not we do not know. It does not matter. It would be a heck of a lot scarier if the Nikkei index dropped 17% and there was no earthquake, Tsunami, or radiation scare. No one knows what tomorrow will bring and that means there is fear.

Lessons Learned

So many, where do I start. We mentioned that carnage in our option holdings. In the last year we have spent a decent sum of money learning the options market. We still have a long way to go. My goal is to retire some day and be able to manage and protect my capital and provide enough income to eat the gourmet dog food and not the generic dog food. I have often found that analogy annoying for if you investigate it, Dinty Moore stew is cheaper than most dog foods, but I digress.

Here is a piece of my long and expensive learning curve. When you buy call options (The right but not the obligation to buy that stock at a pre-determined price on a pre-determined date.), don’t buy them out too far. We bought a bunch of VXX options in November-February for a January 2012 options expiration and it has gone down and stayed there. The reason is because no one cares and it is so far out (Still 9 months) that there is NO pin action on the option so every day we sign on and see this great big ugly RED number staring me in the face showing a minus 89% return. We assumed that when the third largest economy in the world got whacked by an earthquake, Tsunami, and nuclear accident, that the needle would have moved a bit for the VXX options. Well, the March 19 options are going crazy up and the April options have quite a bit of pin action, but the January 2012 options have gone from a minus 89% to a minus 77%. Lesson Learned.

Salve Lucrum

Monday, March 14, 2011

14 March 2011 Resisting the After Shocks


14 March 2011 Resisting the After Shocks

As we mentioned the little bit of gain on Friday was weak on very low volume. No one knows the long term impact of the tragedy in Japan on an already debt weary nation or for that matter how it impacts all countries they trade with. That uncertainty along with continued civil unrest in Bahrain and Libya as well as European sovereign debt issues pushed the market down on light but heavier than Friday’s volume. The Dow and S & P broke fairly important resistance levels of 12,000 and 1,300 respectively. Now you can read all about the nasty numbers everywhere, but we wanted to let you where the brain trusts think the next resistance will be. This is stolen from Charles Schwab Daily Watch and little bit of tea leave reading by yours truly. (Come on wasn’t anybody impressed with that Cronastics Chart last night?) Ok 11,850 ish is where we could see the Dow bounce off from. That would be just hair above the Jan 28 low. Look for (hope for) resistance at 1,279 in the S & P. If they fall below that, hang on to your hat’s Boys and Girls.

The Salve Lucrum Portfolio (Or what is left of it)

As we said we sold out of almost everything last week. Of our few remaining positions, we came very close to our 8% stop rule on WCRX, but it came back a bit at the end of the day. GLD did nothing today. SMTC was up 2% today. Remember we kept our PUT positions on AAPL and AMZN and both of those are getting ripe for the picking. The AMZN put has a nice 32% gain at the close today. SLV is holding a nice 2% gain since we got back in.

One of our stars EBIX was supposed to hit 33 cents a share and we said we would be disappointed with anything south of 40 cents. The hit 42 cents a share BUT took a 3% loss today. We will look at the transcripts for the earnings call and see why. Everything we read tonight was GLOWING. Perplexing, but we are thinking we will pick up some more at the 27.50 level in pre trading hours. Again we should not normally buy in this obvious correction, but this is a great stock with great fundamentals and a pretty chart.

While It May Seem A Lot Like Chasing Ambulances

As an investor or trader (There is a difference you now.) We have to protect our investments by avoiding stocks during a crisis, but look with in those incidents for opportunities. There is a Chinese sysmbol below which shows two women under one roof.

It is the sign for challenge and it is the sign for opportunity. During the SARS epidemic we did quite well with a few pharmaceuticals that were chasing the disease. We also made money of the companies who made those masks that everyone was wearing. During the swine flu epidemic we made a nice margin of the three pharms who had cornered the market on the flu shot vaccines. After Katrina we made some money on a couple of lumber concerns and the industrial supply company W.W, Grainger. There is no shame in identifying opportunities and making a profits so long as you remember where those gains came from and make a heartfelt gesture to be as benevolent as you can. With that pre-amble over, be on the look out for opportunities in the days and weeks that come. Already there are names popping up, The Journal, Cramer, and IBD are beginning to throw some ideas at us.

KUB Kubota Corporation, together with its subsidiaries, engages in the manufacture of machinery, and other industrial and consumer products primarily in Japan. The company's Farm & Industrial Machinery segment offers farm equipment, including tractors, combine harvesters, rice transplanters, power tillers, and reaper binders for agricultural use; small engines; and construction machinery, such as mini-excavators and wheel loaders for various industrial uses.

Their fundamentals suck and they are not highly rated by anyone, but they are local boys in town to start rebuilding the country of Japan. Think of them as the Japanese Caterpillar.

CAT Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. Yes CAT will probably see business increase as a result of the tragedy in Japan as they rebuild but also as the world mines more iron ore to make steel to fit the needs of the reconstruction.

BTU Peabody Energy Corporation, through its subsidiaries, engages in the exploration, mining, and production of coal worldwide. It owns interests in 28 coal operations located in the United States and Australia, as well as owns joint venture interests in a Venezuelan mine. Yes coal will be a dual play as nuclear get frowned upon and the demand for metallurgical coal is needed for the steel demand. BTU is a good play.

If you don’t have the means to explore individual stocks, how about an ETF or two. While the crisis in Japan will cause some short term food source issues, that will be on top of food and grain crises already occurring. Remember the fire in Russia, we have fully replanted and recovered from that. Last year torrential rains in China devastated many crops. All of this has a compounding effect sure to drive agricultural prices up as well as nitrogen based fertilizers. JJG and DBA are each taking a brief down turn because of the short term lack of demand of grains and commodities by Japan. Look for these to reverse once again to the upside within a few weeks. The US Grains Council has already mentioned several of the Japanese prefectures (Think states or counties) that will suffer damage to feed mills and livestock operations, not to mention their inability to get grains to and from various ports. Another broader play in the agriculture field of ETFs is MOO which tracks the lime of POT, MON, and DE. Even in this correction mode in the market, picking up a few of these might help round out a portfolio.

My son had a basketball try out tonight so we are running late so we will leave you with photo from last night's trailer trash get together. The four families impacted by the December flood get together almost every Sunday night to cry in our beer (or in our case usually some really decent wine. Last night we enjoyed a 2008 Rombeaur Zinfandel.) and compare contractor notes. If you look real close you can see the porta potty in the back round.

Salve Lucrum

Sunday, March 13, 2011

13 March 2011 A Moment Of Silence


13 March 2011 A Moment Of Silence

The fact we are publishing this post is evidence we made a prudent decision not to head to Tokyo. While we (our President and a Board of Director’s member and my self) were concerned about the challenging issues regarding “face” in the Japanese Culture, we wanted to allow our office in Tokyo and their parent company focus on their urgent needs both personal and professional. So we write this from the comfort of our partially restored home while thinking of the thousands who do not have homes to restore. Our thoughts and prayers go out to them. Having had an office in the country for more than 25 years and facing several catastrophies over the years in Japan, we can endorse the efforts and fiscal responsibility of the Int’l Red Cross organization in that country. If you have been lucky enough to see a gain this year or last, we can assure you any benevolence toward this catastrophe managed by the IRC, should serve the victims well.

A Picture Is Worth A Thousand Words

We did not keep on top of our “Cronastics” Chart for a couple of weeks because as we indicated, we did not see any forward looking value in the chart. Over the weekend, we charted the data points from February 28th till this last Friday and it is actually quite illuminating. Keep in mind that we and others pegged this rally as reaching a climax on February 18. Look at the chart on the 18th.

The chart only carries a little momentum (2 days worth) and then begins as slight adjustment down ward. On the 22 the chart peaks with a value of 6.828. Then we see a series of gradual drops averaging .7% for 4 days. By March 1 those drop are escalating to 5.5% drops for the course of the week. If this chart holds any forward looking value (yet to be told) the 6.5 value has a significant role in measuring top end value of the market. Time will tell if that value is relevant to any and all rally’s but it does seem interesting. As this sell off continues, it will also be interesting to see of the data points define a statistical bottom range. Time will tell.

Barron’s This Week

Interesting flavor to the magazine this week as we expected to see a lot of doom and gloom with Lybia, Saudi, Spain, Wisconsin concerns floating about then coupled with the disaster in Japan. Most of the articles did not mention Japan telling us their “bed” time was prior to the incident. Many of the articles addressed the recent market down turn as an opportunity to be a contrarian player and take advantage of many “correcting strategies”. These included currency plays, “healthy” munis (That would be Municipal Bonds for the new players.), gold, silver, and a lot discussions about ETFs that play nice in a declining market. This implies we are having an orderly correction in the market. The VIX data point would support that observation. The VIX is a measure of volatility as determined by the Chicago Board of Options Exchange and measure the difference between Puts and Calls (options) in the market. Since January the fluctuation have been mild with a low of 14.89 and a high of 21. When we were going through the turmoil of 2007-2009, it reached into the 70s. Many investors hedge against the unexpected by putting a portion of our accounts in ETFs that mimic the action of the VIX. Ours is VXX and we buy call options out 12+ months just a hedge in case the unaccepted happens. Because this is an orderly correction, we are loosing our hiney (Financial Term For Capital) on our VXX calls, but they do not expire until January 2012. Even the unrest in Egypt, Lybia, and possibly Saudi and the Tsunami in Japan have not moved the needle much. That can be an indicator that there is a lot of confidence in the underlying economies driving the market. That reminds me has Congress and the Senate come to a permanent fix for the debt ceiling? I guess not. President Obama addressed the critical issue of women’s pay rights in his weekly radio address. (No mention of Japan and even CNN found that a bit strange.) Harry Reid in was talking about the oh so important issue of legal or illegal brothels in Nevada. And Newt was talking about former wives and his disappointing roles as a father and husband being the compelling reason to run for office in 2012. (I’m thinking he is tired of writing a new book every 8 weeks.) Come on folks, we are yet another week away from the government shutting down and those are the important issues? But I digress. Speaking of digressing. I have an app on my new iPhone that is basically 29 versions of the Bible. They have reading programs that let you finish the bible in a year. Anyway at breakfast today I noticed one of my app store updates was this Bible App. It kind a hit me as funny. They are updating the Bible?

Will I see the Gospel according to Bob? Or perhaps an excerpt from St Luke’s letter to the Cambodians? If they really are updating the bible I am going to request they eliminate all reference to gluttony. That one is going to bite me in the butt when I hit the pearly gates. But I digress some more.

Back to Barron’s, Sandra Ward writes a great piece about the 4 trillion dollar a day hairy scary market of foreign exchange. I have played in this sand box quite a few times and ended up with sand in my pockets instead of money. I will admit I am not bright enough to play in that game. This is a great article that might encourage you to give it a try.

I am as esoteric as the next guy, but I read the first page of Abelson’s article this week and I only have on thing to say. “What the heck was he talking about?” I guess the line grab they used as the anchor clears it all up: “Central Bankers-wherever their based-wouldn’t be central bankers if they knew what to worry about.” So there ya go clear as a Koi Pond in North Eastern Japan this week. Santoli had a good article about ETF plays in the wayward correction. I’ll give you a teaser FOL. Andrew Bary did a side piece about how good they were calling WDC Western Digital a year ago May in a bullish article. This one might be worth putting on the watch list, but again let’s wait until the overall market settles a bit with a few strong accumulation days. Sorry, Friday does not count as an accumulation day as volume was weaker than Popeye during the great spinach famine. (Don’t Google it, I just made it up.)

Then the Ward article was a great dissection of all the relevant foreign exchange plays out there via ETFs. From the British to the Swiss franc, they are all here. Give it a read. Here is my teaser, UUP which goes up as the dollar improves, hint hint, consider buying puts or shorting. Theresa Cary and the team do a great job of analyzing 22 on line brokerage firs and score them on a 5 star basis. Good article, and worth the cover price if you trade more than 20 trades a month. Tiernan Ray does a great job kickin the tires on about eight solar companies. We don’t like the sector because it is too early to play it. Even companies that make money do not have reliable stock performance. The technical term is goosey. Good article none the less. Gadget of the week is the iPad2. They love Love Love it. Mark Veverka does a very positive article about HPQ Hewlett Packard. We believe everything he wrote, but don’t have the patience for 12-18 months to see it come to fruition. It is on our kinda watch list. James Anderson does a good piece about Mututal Funds Zzzzzzz. You all know how we feel about MFs. Jacqueline Doherty who we love to read (Her and Santoli are our favorites) does a great article about BAC Bank of America, but we are having a hard time believing all the positive forward looking statements. Sorry Jacqi, this one does not make it to the watch list, but we welcome you to reads the article and draw you own conclusions. It’s a 10 dollar stock dressed up with a 14.00 current price and with a little luck might actually be worth 14 in a year or so. Sandra Ward score another great article due to an informative interview with Ray Dalio founder and hedge fund manager at Bridgewater and Associates. He manages 90 Billion in assets for high income individuals and other governments central banks. This is a great read. Hint here long gold and commodities. Short bonds and careful with equities. If you want anymore, go buy the magazine. If anyone is disappointed, I send you the cover price.

The Week Ahead.

Ok we lost an hour here some where so you will get a day ahead and we will catch up the rest later this week. The real good news is we have no economic data points tomorrow. As far as earnings tomorrow we only have one we are watching because it is one of the few equities we have left after our sell off. Ebix, which we thought reported, last week reports tomorrow and we will be disappointed if it does not blow away the 33 cents a share.

Pick of The Day

For your watch lists, we would not recommend buying anything right now as we are in and evident correction. Do your homework and study your books and check out 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.

Fundamentally, price to book is a little rich, but other than that a little too much debt, we liked what we saw. Some are talking about a doub le from its 52 week recent high of 27 and change. Keep this on the watch list and look for the first break in the weather. (That would mean at least a drop to 4-5 distribution days.)

Again, hope you had a great weekend and please consider taking some of your gains and send a couple bucks to the IRC for those that need it in Japan. Good Karma has way of making its way around.
You're telling me an earhtquake and tsunami is more important than me?
Salve Lucrum

Thursday, March 10, 2011

10 March 2011 Silver and Gold Silver and Gold


10 March 2011 Silver and Gold Silver and Gold

As we mentioned, we are having some lacquer painting done in this phase of our construction so unless you want to reallyget whacked, it is not the type of place you want to stay at too long so we are set up at The Local Ayers Hotel.

So my typical morning for the next couple of weeks looks kinda like this. Up at 6 am out the door by 6.15 at the house by 6.25 on portfolios by 6.30 and off the portfolios by 6.45. Take care of the cats, jump in the pool by 7.00. Shower at 7.30. Meet the contractors by (whenever the hell they want to show up.), then a quick coffee and bagel, then to the office.

Today on my ride to the house, I was listening to Bloomberg radio and did not like what I was hearing about the pre-market hours. Oil was headed down, but so were the indexes? That was a little funky. The jobs number was disappointing (we kinda called that Sunday night.). Saudi’s said they will not tolerate social unrest by firing guns at potential protesters. (By the way, a great way to make a potential protestor a protestor is to fire guns at them.) They are now using the words “civil war” to describe what is going on in Lybia. China had announced its 5 year plan and it is several hundred pages long and it says we will consume more domestically and we want Chinese people to be more prosperous. Gold was coming down, treasury rates were going up. The dollar was gaining strength in almost all trades. That was all on my 7 minute ride from the hotel to the house.

When the market opened, we took our own advice. We cashed out of almost everything and did so with all the US portfolios we manage. (11 if you are wondering.) Most positions enjoyed a profit as we closed them out except for some call options that are more than one month out. They will either improve of expire worthless. In the Salve Lucrum portfolio we were 65% cash, 27% Bonds, 6% options, 2% equities (Long) before I hit the pool this morning. A couple of the portfolios actually ended up 100% cash.

This Is Our Garage After The Sell Off This Morning.

With Bloomberg playing in the back round all morning, our decisions seemed warranted. We would never be one to say we called the market, but may have close on this one. When lunch time came rolling around and the market was off about 2%, but in an orderly non-frantic way, we thought about the huge cash position we had created for everyone. We decided to place a low risk hedge bet.

We put nearly everyone in a 60/40 gold/silver position with the cash proceeds from the morning with some strategic June July Put options as cheap insurance for a possible slippage in those commodities. We left a 10-15% cash position in most of the portfolios.

The timing on this is good as I am heading to Tokyo for a couple of days next week and will not have convenient access to the portfolio in case there is a bout of bedlam.

Green Mountain of Cash

GMCR Green Mountain Coffee Roasters, ever heard of them? In 1980 a guy named Bob Stiller walked into a coffee shop in Waitsfield, Vermont and in 1981 he incorporated the business. After launching some organic brands and starting a mil order service, things began to take off. About 1993 a couple of engineers from a coffee maker company (Keurig) came to GMCR to work with them to design a single serving coffee maker. The rest was history. The single serving packaging called the K Cup patent was held by GMCR. By 2006 it is so successful that GMCR buys Keurig. GMCR stock is a rocket. One dollar invested in 2006 is worth $823 today. The stock was up today by 41%. Why? After three years of trying, Starbucks cannot break GMCRs stranglehold on the single serving format. Today Starbucks and Green Mountain have come to terms on a licensing agreement that will allow GMCR to sell Starbucks in the K Cup design. There are already discussions of who will end up buying who. GMCR buying Starbucks or vice versa. SBUX and GMCR were a few of the stocks that went into positive territory today. I’m excited because part of the deal is the SBUX Tzao Tea offerings will be available. We love our Keurig, or at least we did when we had a kitchen.

So it might not be a Pick of The Day, but definitely one to watch GMCR Green Mountain Coffee Roasters, Inc. operates in the specialty coffee industry in the United States and internationally. It sells approximately 200 whole bean and ground coffee selections, cocoa, teas, and coffees. The company offers Arabica bean coffee, including single-origin, Fair Trade Certified, organic, flavored, limited edition, and proprietary blends under the Green Mountain Coffee, Tully's Coffee, and Newman's Own Organics brand names. It also manufactures gourmet single-cup brewing systems and markets its patented single-cup coffee and tea brewing systems for offices and homes under the Keurig brand name. The company provides cocoa, teas, and coffees in K-Cup portion packs, Keurig single-cup brewers, and other accessories. It sells whole bean and ground coffee, K-Cups, Keurig single-cup brewers, and other accessories in domestic wholesale and retail channels, and directly to consumers. The company markets coffee, tea, cocoa, and single-cup brewers to retailers, such as department stores and club stores; and single-cup brewers to distributors, as well as to supermarkets. Green Mountain Coffee Roasters, Inc. was founded in 1981 and is headquartered in Waterbury, Vermont.

Salve Lucrum