Wednesday, June 08, 2011

7 July 2011 At The End Of Several Journeys

At The End Of Several Journeys

We say good bye to one of our contractors today as he finished the touch up and artsy fartsy finish to a few walls once buried in mud. We also began the paperwork to start a voluntary project, to extend our sons bedroom and god knows it needs extending. The end of one of our journeys was the prayer service this morning at Serra Catholic School. While it ran a little long, it was a moving emotional reminder of 9 incredible years of our sons involvement at catholic school. It really didn't hit me till we were on the main floor of the gym laying our hands on his forehead and reading the blessing for the kids. I looked at my wife who had big alligator tears in hers eyes and just assumed one more thing had gone wrong with the project at home. It was then when I realized she was mourning the end of Jack's years at Serra. Even then it hit me. The years of dropping him off at school, running his lunch he had forgot, endless hours of homework, the star watch night at the school, the sleep over on the tall ship Pilgrim and the 9 years flashed before me and it was moving. We had managed to give our son a great education founded in our faith and religion. Job well done.

Tonight our 5 foot 9 son enjoyed himself at the 8th grade graduation dance while mom and I celebrated our success with a great dinner at Hanna's. Jessica took care of us like a sister or mom would take care of her family. Dave came by to say hey, patron extraordinaire. Life is good.
 Life is good.

Mr. Market Opened up in a good mood today.

The Frenchies ala Mr. Jean-Claude Trichet came around to supporting a bond shell game for Brother Greece. The supportive rumors that boosted the market last week, which we complained did not have any details attached turns out to be a roll over of bonds for Greece. It is a classical case of robbing Nikolas to pay Maximus (Peter to Pay Pal). Trichet is encouraging Eurozone members to buy new Greek bonds to pay off the ones that are coming due. That makes about as much sense as a central bank buying its own bonds and financing it by printing more money. Hey wait a minute that what the US had been doing for the last two years with QE I and QE II. There was also good retail number in many parts of Europe. German factory order also made for a nice awakening of Mr. Market today. The Bank of Australia chose to leave interest rates alone last night so that threat was taken off the table. Inflation in the Phiilipines (which had been heating up) cooled off based upon the figures release last night.

All of that made for a good opening and that feel good high lasted until the last hour of trading. The consumer credit number came out rather healthy as we expected, but we can't take a win in that category. We called the number a full billion over the consensus. We said 6 Billion versus 5 billion. The number came in at 6.2 billion, but when you drill down into the report, the largest jump was in student loans. That does nothing for the economy. When you back out the student loan numbers, the consumer credit number is 4.9 billion. I can't believe Mr. Market dissected that before the close of the market today, so the last hour drop must have had something to do with what Bernanke might say in his speech in Atlanta. There were rumors he might start suggesting we tighten capital reserves at member banks which would have the same impact of interest rate increases.

Flotsam and Jetsam

Just some stuff that has been asked or run across my desk of late. Tim from UBS is good about sending out a daily package and today's had a nice piece about sectors to lead us into the back part of the year. Keep an eye on the consumer staples, health care, telecom and utilities. Our suggestion would be look for value over growth. Everything I am reading is that growth estimates for the balance of the year are overestimated.

I tripped over a great brand with a .82 price to book with little debt and decent cash flow. With a 2.78% dividend yield, it might be interesting to look at this for a long term 18-36 month hold and see this 30 dollar stock return to the 40.00 range where to probably belongs. ALL Allstate. Yeah the same company that schlepped me on my home owners insurance. Maybe that is how their cash flow is so decent. Another stock with a sexy price to book is GE, General Electric. The price to book is 1.6. That means with its current selling price of 18ish, it is an 11.00 stock.

Now if you go way back to the first posts we did in 2009, you would see where we called GE an 8 dollar stock selling for 12 dollars. NOTE the price to book. Back then it was 1.6. They have lousy financials and are still way too in debt, but the 3.25% dividend and the GE franchise looks appealing at this level.

In the category of linkage, we were unloading a bunch of groceries into our home and could not help but note all the packaging. By the time we got everything put away, we had more bags of trash than we did of groceries. Then I read an article about all the growing middle classes in emerging markets and said they will need this packaging. Who makes it? I found a decent play I am going to put some more work into, but the name is SEE Sealed Air. Their debt is a little high but their cash flow is pretty. They just acquired a company and they themselves are an attractive takeover target. This is a 26-28 dollar stock selling for 22. DO YOUR HOMEWORK.

Somebody asked me about Natural Gas. You know we had some serious money in PNG and UNG and walked away after loosing more than 8%. This may be a time to take another look. They were specifically asking about a Canadian firm CNQ. Have not done the homework, but at quick glance it looks decent. Its debt and cashflow leave a lot to be desired. We are going to look back into the field again as UNG has enjoyed an 11% bump in the last 30 days. Terry from Australia sent me a not sharing a news piece that US congressmen and senators have unusually high stock returns. How could they when they are so busy Twittering their photos of their favorite private places to everyone.

Salve Lucrum


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