BAGAKOAA June 6, 2010 No haya noticias es buena noticia

BAGAKOAA June 6, 2010 No haya noticias es buena noticia


Loosely translated, “No news is good news.”, en spanol. If you recall back on January 4, 2010 this blog prognosticated:


“So in 2010 the index to watch will be the S & P 500. Since my Feb 2009 prognostication the DOW went up 33% and the S & P 500 went up 26%. There are 500 stocks in the S & P 500 and many have revenue growth as well as cost cutting strategies. The S & P 500’s forward looking PE ratio is about 16. With the (2009) year end close of 1113, I am looking for a year end (2010) S & P 500 of 1335, almost a 20% increase. This will take two critical elements that must happen. Consumers need to start spending be it frivolous or value purchases. And we need to see a bottom in real estate. If both happen by mid year, the 19 % improvement in the S & P 500 is real. If not it will be difficult if not impossible. You could extrapolate a DOW around 12, 500 based upon that guess, but I wouldn’t bet me life on it.”


Well Boys And Girls And Kids Of All Ages, we are almost at mid year. Those two critical elements SEEMED to have been improving stimulating the decent rally we had between February 19thish and late April/early May, May 7th by my estimations. Friday we were bushwhacked by a dismal employment report. We, the fluffy day trading casino monkeys, had been led to believe that there was going to be solid employment numbers. There were tells from the Whitehouse, the treasury, and even commerce that the job report was going meet or beat expectations even after adjusting for the slew of people hired for the census project. Apparently this expectation went well beyond us lower primates of the investment world as it appears a bunch of fund managers and financial advisors were all sipping the same cool aide prepared by the powers that be.


While many on the west coast were just waking up Friday morning, the employment figures hit the street with a thump! Private sector hiring was a dismal 41,000 people. That is in comparison of two months over 200,000.


So how can consumers play in the game if we are not getting people back to work. They can’t. Look at same store sales for the retailers who have reported over the last few weeks. The numbers are very sporadic. If you are optimistic like me, you could deduce a slightly positive trend. The data concerning real estate is just as funky. You here some good news in certain sector and certain price points, but then you hear some scary foreclosure stats.


That means my prognostication is probably going to be way off. So what does that mean to us fluffy day trading casino monkeys? Caution. BUT don’t do what I did the week following the flash crash. I spooked after re-establishing my positions and sold on the scary Euro debt picture. It gave back some of the gains that were triggered by the Flash Crash. It would be very easy after a cataclysmic drop of 3% to scatter and run for the hills.


Instead, here are few other options to consider under three possible scenarios.


Scenario one is you have little cash, but some unrealized equity gains. Take some of the profit now, (Monday morning). If you are up 10% on a stock, take 10% off the table now, ASSUMING you still like the stock which might require you to go back and do the homework as to why you bought it in the first place. Then when the market corrects further on the downside this week, WHICH IT WILL (I’ll explain shortly), take some of those gains and buy back the stocks you love at the lower prices. Obviously if you don’t love the stock any longer, get completely out and invest in some of the accidental high yielders that Cramer, WSJ, Morningstar, and Barron’s talk about everyday.


Scenario two, some gains, some losses, some cash. Take a look at your gainers and follow the instructions for scenario one. Take a look at your losses and make sure these are stocks you still love, in other words do the homework. If you sre still in take your cash and some of the gains you just just generated and slowly and gently gain more of a position on these stocks you love as the market adjusts down this week WHICH IT WILL.


Scenario three, no cash, losses on all of your stocks. Hopefully you have some stops in place but if all of your stocks are down right now I am betting that you do not use stop orders, shame on you. Put some stops in Monday, at about 10-12% below Friday’s closing price, go to Amazon.com buy a Kindle, downlaod a few books and don’t look at your portfolio till August 28th. There ain’t nothing you can do without some cash for the next 2-3 months. So don’t try. Relax and forget about it.


Here is why we are confident that next week will not be pretty. Look at the economic calendar . (I use Barron’s but it is subscription based so I have attached a link to Yahoos which is very good and very free.) for the next 5 working days. YAWNNNNN.


Monday you have a consumer credit report, YAWN. It will probably contract a bit more meaning people are spending less, but no number on this report regardless of how good it might be is going to positively impact the market. In fact, most people are poised for more downside so if the report is week it will be reason for them to sell.


Tuesday you have Goldman and Redbook retail numbers. YAWN. Again don’t expect anything here to help the market but expect the market to feed off any weakness.


Wednesday you have a mortgage bankers report on mortgage applications. YAWN, nothing there, I am guessing bad news. Later in the day we have the Wholesale trade report. YAWN. I am guessing mediocre news at best. Even later we have oil and gas inventory reports. YAWN. My guess is there will be plenty of oil lying around and that will put even more downward pressure on the commodity. Then at 2:00 EST The Department of Commerce publishes their latest best seller, the continuing saga of The Beige Book.  Ok its not a best seller because its FREE. I attached link for you in case you have insomnia Wednesday Night. YAWN


Thursday we have an early international trade report. This could be the only wild card next week to pump up the market. Without getting into a long explanation about trade imbalances, the impact of cheap oil, the value of the dollar against the Euro, a drop in our trade balance is a good thing since we usually have a negative trade balance. So a drop in our trade balance means going from a minus 40 billion to a minus 39 billion and that would be good. I am guessing a very slight improvement most of which would be attributed to a stronger US dollar. If the trade imbalance improves immensely, which I doubt, we could see a nice spike in the market. At the same time Thursday (8:30 am EST), we have jobless claims which I don’t see improving significantly or getting much worse. YAWN. Then we have a nat gas report which should indicate we have GOBS of the stuff. Hello Washington are you listening. GOBS of it. YAWN. We also have the Treasury budget report on Thursday. YAWN. (News flash, we spend more than we make in the US?) Double YAWN.


Friday, we have Retail sales which I am guessing will be mixed or negative helping close the week down another 3%. That’s right I am guessing the overall week will be down another 3%. So for you Dow Fans, Look for a Friday Closing of 9,633 and for you more astute casino monkeys the S % P will be at 1,029. (If you did the math, I dinged the S & P at a 3.25% drop versus 3.00% for the Dow. I have my reasons.


Why all of this negativity. We’ll there is very little influential news coming out of the US this week so we are at the mercy of International news. How do you think that is going to play out this week? Portugal and Spain are doing a bond offering this week. Do you think they will be giving higher or lower rates to sell those bonds. I’ll give you a hint. Its going to cost them a lot more to move bonds because of the debt issues. Hungary is now getting ready to beg for money. And as far as the other Euro countries, mom always said, “If you can’t say something nice about a person, don’t say anything at all.” So we can talk about China. China is cooling. It is an intentional cooling, but a cooling none the less. We can feel the cooling in the price of certain commodities like copper and oil. So as China goes so goes the rest of the world.


There are also hardly any relevant earnings announcements this week as we get to the end of earnings season. I have attached the link to Yahoo’s earnings reports so you can look for yourself, but there are no Players that can generate an upside to this market, this week.


I spent a lot of time looking for some good news in this weeks Barron’s and they are hard to find. I even take exception to Andrew Bary little article about BP indicating it could be a scary but profitable play. Don’t get me wrong, I think BP will be in play soon, but Bary's closing paragraph was pimping RIG. Deep water moratoriums KILLS RIG. They are cheap, (About a 5.5 PE) because they are dead in the water, pun intended. I even dallied in the SEC website Edgar on lIne ands looked at the 13 D filling as to who is buying and selling what. We all look confused.


Here is what the Salve Lucrum portfolio looked like after closing on Friday. So as you can see I am feeling the pain as well. My plan this week is scenario one. I also look to improve my nat gas plays, MDR, UNG and WPRT. President Obama used the words natural and gas in the same sentence two more times since Thursday.

Salve Lucrum

BAGAKOAA May 31, 2010 Trading vs. Investing the REAL difference

BAGAKOAA;

May 31, 2010 Trading vs. Investing the REAL difference


Hope you are all enjoying the long “Decoration Day” weekend. Memorial Day had its roots in the former Northern States of the US post the civil war in 1868 and it was known as Decoration Day as that was the day people would decorate the graves of those fallen in battle. Michigan was the first state to actually make it a holiday in 1870. Though the term Memorial Day was not used till sometime after World War I, by the end of World War II it was the common name. In 1968 the Congress passed the Uniform Holiday Bill which defined Memorial Day and set the date for the Holiday. We hope you took a minute to think of those who have given the ultimate duty to your country.


It is a fairly quiet news weekend as far as the market seems to go. The Turkish market was very wobbly today as Israeli troops clashed with pro-Palestinian demonstrators aboard ships carrying Turkish flags. The Turkish market ETF TUR was down today in international trading by 2%. Barron’s just did a brief article about TUR indicating that it was one of the best Euro bets going because of significant immigration, a low debt to GDP ratio, and over all economic soundness compared to the region. So does this one day skirmish warrant a 2 % drop creating a buying opportunity? It could be, but as we say, only use the Vegas cookie jar on that bet. It is trading just hare above its 200 day average and this current news should take it down to just that level. It was as high as 64 in April and will probably be down to 51-52 tomorrow. This is an ETF reflecting the Turkish Stock Market action. This is strictly a market play. Do your homework and good luck.


Saturday, after a beautiful round of golf, well the weather was beautiful, my game was stinking up the place, but I digress. After the game I had a few minutes to get caught up with some Cramer episodes and read this weeks Barron’s. I’ll get to Barron’s in a minute.


Friday’s Mad Money was a classic. If you have iTunes, please do yourself a favor and download the episode. His opening dealt with the FACT, that buy and hold is no longer a prudent investment strategy. He gave actually historical performance criteria to support his statements. He calls the idea of buy and hold, “Buy and Forget”. We know we are all guilty of that or at one time in our investment lives we were guilty of that. He goes on to say holding a stock in an IRA or a 401 K and ignoring it is not a sound money management scheme. I know several of you have funds that you say you can’t or don’t want to touch. That is a shame and you might want to reconsider that line of thinking as this volatile market we live in is no place to leave equity money lying around.


Now I cried and moaned after the Flash Crash of May 6th. I was mad as hell and wasn’t going to take it anymore. I got stopped out of almost every one of our positions and most had a handsome profit. All I had were gains and resulting taxes. Well, it turns out that was huge blessing in disguise and just further supports the argument that long forever can be gone for ever. That flash crash helped me avoid the worst May in the market for 60+ years. We now have cash, have gradually reestablished new positions on our favorite valued stocks and are doing our homework to find others.


Cramer’s comments last Friday were helpful in understanding that we as investors must be well educated, nimble, and responsive to what goes on in the news and market everyday. He echoed much of the content from the book Active Value Investing by Vitaliy Katsenelson, which we have quoted in this blog on many occasions commencing with one of the first posts back in October 2009. Katsenelson’s usage of the term Active Value Investor is just another word for a responsive trader. So what is the difference between an investor and a trader.


When we hear the word trader, we picture the person sitting behind 3 monitors and reacting to every click of the market. I have done that and quite honestly did it as late as last week at 6:30 in the morning guessing which way the VXX (iPath’s derivative of the CBOE’s VIX). I have done live trading on several other occasions. It is not my cup of tea and quite honestly I have this thing called a full time job that precludes me from staring at the live feed from streetsamart.com on Schwab.


Now a trader, not a day trader, but someone who does the required homework and looks for opportunities to buy on the dips or non strategic weaknesses in a companies stock price and has a window of investment of between 12-18 months, is a trader or as Cramer and Katsenselson might say “an value active investor”. Then you might have a subset of those people who are astute enough to buy a value stock that has a good yield and long term promise and keep those stocks or a solid position in that stock for years. They are a long term investor. They could be and probably are an active value investor with a time frame in excess of a couple of years.


Do not confuse any of these trader/investors with the buy and forgets. I know of at least a couple of readers who bought into RIG when I was pimping it last year and earlier this year. Despite our mention of having well thought out and strategic stop orders in place, there are those people who still have RIG TODAY, despite a 40% drop in market value. The Salve Lucrum Portfolio got out of RIG , TransOcean with in hours of the explosion once I heard the oil leak estimates. RIG only does one thing that made it such a competitive proof company. Deep deep oil rig drilling services. If you are Exxon, Chevron, BP, etc there is only one company that had the expertise to drill below 3000 feet. But it was what set them apart. That business model is in critical condition as Norway, The US, most of Asia, and even the middle east have ceased any new deep water rig orders.


So if you are going to get in the market, that is buy stocks long, be prepared to do the homework and stay on top of your list of stocks you own, but be ready to buy when there are dips in there value because of non-strategic noise in the market place, and be prepared to take a profit when they become impressive, and be prepared to know when you decisions to buy a stock no longer exists. Trade or invest its up to you as long as you are making money.


This weeks Barron’s was good, bit not as great as the last several. There was much opining about the miserable May, Greece, Korea, Oil Spillage and a less than favorable feel to the magazine this week. If you are a fan of the take over executive Carl Icahn, Andy Bary had a good piece in there about how to invest with Carl. (The guy has a net worth of 10 Billion so he probably gets it right more times than wrong.) It appears to be a fairly quiet week ahead for economic news and we are nearing the end of reporting season. Let hope it is a stable week in the market and folk can get back in the game.


In Friday’s post I through out some Water Metering companies to take a look at. I hope you did. Here is what I found out.


ITRI  is not a pretty picture. According to everything I could find, their margins are weak, income is just starting to return, and thave significant long term debt, which I did not even bother to get the details on. I’d keep this on a watch list and read their press releases. As water and electric utilities go to remote metering ITRI could be an interesting play.


BMI on the other hand is a lot more promising now. They have no debt and they throw a little (1.2% yield) dividend. Their multiple is running a little lot at 23.6, but I am guessing that is because they could be best of breed. Earnings per share growth is 3 times the industry average and their ROE, (one of my favorite factors) is an impressive 24.6. Free cash flow has tripled in the last 3 quarters. Did I mention they have no debt. After reading the last 10 Q. I like what I see. CAUTION, There are some negative reports out there. Schwab shows them as an F, strongly under perform. I can only see two reasons for that and it would have to do with a changing of the guard at the Board level and the first quarter revenues being 5.7% even though their margin improved and their profit improved. Ned Davis Research also has them as a sell citing some market fears and the over value of the stock. I don’t see it as forward looking PE ratios are at 16 which is far from over valued. They have cash and no debt and what should be a strong second quarter. I am liking it below 40 a share. I will get in slow staying below the 40 thresh hold and acquire a 1% of my portfolio position and wait and see what the 2 nd quarter results brings. I am on my own with this pick but I like it. There will be an 8% down side stop put in once we catch and below 40.00 price. I am looking for a 42.00 stock by the end of summer.


So to all you traders and investors,


Salve Lucrum