Tuesday, December 29, 2009
Tuesday, December 15, 2009
Going Nowhere
Every morning, we wake up in a cold sweat over here at Magnum Opus Financial wondering: "What is going to happen today?" Instantly we grab an iPhone and click on the CNBC App which inevitably goes straight to the PRE-MARKETS where we see whether this day "looks" like it'll be easy or hard. Then we get ready, find something to eat and make our way to the office.
This morning, when we brought up the PRE-MARKETS, we see a very telling chart of the DOW, S&P 500, and NASDAQ over the last 30 days. We have had 4 dips in these indexes over that period of time, nearly all of them reaching the same levels and then returning back to the same level as before. Now, from an absolute basis, the markets do claw higher and higher each time we come back from the dip. But it's the fact that it claws higher that we can be OK with this market going higher. Compare the recent period from November 1st to today, and it's really not that exciting. Really, since August 14th (nearly 5 months ago) the market has been forming higher lows and higher highs. The slope (the mathematical term that means the angle of the line, or how dramatically it rises or falls), is really slowing down since November 9th...it's almost a straight line.
We need a market that is NOT parabolic (like the period from March 9th to May 8th). See, the other side of a parabola is the same as the upside...just straight down. When we saw the S&P do nothing from May 1st to July 14th (seriously, the level of the S&P at the beginning of the period is nearly the exact level it was at on July 14th, at the end); it went much higher from July 14th to November 1st. Bottom line, we may be going nowhere over the next month or so...and that's just fine. We need periods of consolidation, or even decline for this market to stay healthy. Our favorite saying is: "The longer the base, the higher in space." There is nothing wrong, we think, with believing that we are building a base right here around 1100 in the S&P that will end up being a very good support going forward.
As long as we keep seeing signs of improvement like Exxon buying XTO and banks returning TARP, we think things really are improving. So, do your homework, find individual stocks of good companies that have gotten too cheap, like Terex (TEX) and Molex (MOLX) and don't forget to take something off the table when you're up big. Just know that for now, the indexes may just go nowhere for a while (but that doesn't mean your stock has to).
This morning, when we brought up the PRE-MARKETS, we see a very telling chart of the DOW, S&P 500, and NASDAQ over the last 30 days. We have had 4 dips in these indexes over that period of time, nearly all of them reaching the same levels and then returning back to the same level as before. Now, from an absolute basis, the markets do claw higher and higher each time we come back from the dip. But it's the fact that it claws higher that we can be OK with this market going higher. Compare the recent period from November 1st to today, and it's really not that exciting. Really, since August 14th (nearly 5 months ago) the market has been forming higher lows and higher highs. The slope (the mathematical term that means the angle of the line, or how dramatically it rises or falls), is really slowing down since November 9th...it's almost a straight line.
We need a market that is NOT parabolic (like the period from March 9th to May 8th). See, the other side of a parabola is the same as the upside...just straight down. When we saw the S&P do nothing from May 1st to July 14th (seriously, the level of the S&P at the beginning of the period is nearly the exact level it was at on July 14th, at the end); it went much higher from July 14th to November 1st. Bottom line, we may be going nowhere over the next month or so...and that's just fine. We need periods of consolidation, or even decline for this market to stay healthy. Our favorite saying is: "The longer the base, the higher in space." There is nothing wrong, we think, with believing that we are building a base right here around 1100 in the S&P that will end up being a very good support going forward.
As long as we keep seeing signs of improvement like Exxon buying XTO and banks returning TARP, we think things really are improving. So, do your homework, find individual stocks of good companies that have gotten too cheap, like Terex (TEX) and Molex (MOLX) and don't forget to take something off the table when you're up big. Just know that for now, the indexes may just go nowhere for a while (but that doesn't mean your stock has to).
Friday, December 11, 2009
When is Boring Good?
So, what do you do, right now, with your portfolio? The stock market is undecided as to what it's going to do. Joe Terranova, today on Fast Money Halftime Report, he told viewers never to sell a quiet market. That is exactly what we have in front of us...very quiet. We have been in this range for weeks now. So, now what?
If you are long only (for a definition of "going long" please see our YouTube Channel video on the subject to get up to speed. So, if you're a retail investor, we are very sure that you own few options positions (if any) and very rarely do you sell stock short. So, what can you do to protect all of your long positions? We have two ideas.
1) The VIX, is the measure of options action on the S&P. The higher the VIX, the greater the movement on the S&P that is expected. So a 20 handle on the VIX indicates that corresponding move in the S&P 500 index. As the VIX rises, you see wilder and wilder swings on the index. Now, it has been called the "Fear Index" and there is a trader on the FMHT Report that they call the "Fear Merchant" but those are really silly, uneducated characterizations of the VIX. What we do know is this, when markets decline, especially big, people place more options bets, more protection, more directional calls...and it sends the VIX UP! So, stocks down, almost always, VIX up. SO, you can buy iPath ETN that tracks the VIX! You can buy the VXX, which tracks the shorter term futures of the VIX. They have another product that tracks the VIX on a longer term...but we think there is a lot of noise in that product, so take a look at getting long the VXX as a way to protect your portfolio of individual stocks.
2) The Dollar is one of the most crowded trades ever. The stock market and the dollar are certainly at odds with each other right now. A weak dollar is terrific for US companies that export goods to foreign countries. So, if you want to make money when stocks go down...you can own the US Dollar! Usually, with commodities, there is a "negative roll yield". This is just fancy talk that tells you every time the index is rebalanced, usually monthly or quarterly, then you lose a little bit of money as they roll those contracts (sell the current month and buy the next month contract). They have to roll commodities contracts because (like options) those contracts expire on the expiration date and they don't actually want to take possession of the actual commodity. This problem of a negative roll yield doesn't exist in the UUP (the ticker symbol of the Powershares Dollar ETF) because there is no cost to store dollars (as opposed to oil, corn, sugar, etc). This means that when you buy the UUP, you can really own in forever if you like.
One of two things will happen with the UUP. Either stocks will remain at odds with the dollar, and on down days, you'll see the dollar go up. Because so many people are short the US dollar, eventually those people will have to cover their short position by buying the dollar back at the then current market price. That could be ugly and you could see an amazing short squeeze (sending the UUP up huge). OR the dollar and the stock markets will decouple. This means that they can move in the same direction. When that happens, it means you can continue to own the UUP AND your stocks at the same time! So, we think, this may be something that you could hold forever. Essentially your only risk is political risk (which involves fiscal responsibility risk). Unless the US collapses, the dollar will always be worth something...and the people feel like the dollar will be much stronger in 5 or 10 years. A short covering rally in the dollar will certainly bring that to fruition.
There you go, two great ideas for how to protect a long only portfolio when you can't (or will not) go short or own options!
If you are long only (for a definition of "going long" please see our YouTube Channel video on the subject to get up to speed. So, if you're a retail investor, we are very sure that you own few options positions (if any) and very rarely do you sell stock short. So, what can you do to protect all of your long positions? We have two ideas.
1) The VIX, is the measure of options action on the S&P. The higher the VIX, the greater the movement on the S&P that is expected. So a 20 handle on the VIX indicates that corresponding move in the S&P 500 index. As the VIX rises, you see wilder and wilder swings on the index. Now, it has been called the "Fear Index" and there is a trader on the FMHT Report that they call the "Fear Merchant" but those are really silly, uneducated characterizations of the VIX. What we do know is this, when markets decline, especially big, people place more options bets, more protection, more directional calls...and it sends the VIX UP! So, stocks down, almost always, VIX up. SO, you can buy iPath ETN that tracks the VIX! You can buy the VXX, which tracks the shorter term futures of the VIX. They have another product that tracks the VIX on a longer term...but we think there is a lot of noise in that product, so take a look at getting long the VXX as a way to protect your portfolio of individual stocks.
2) The Dollar is one of the most crowded trades ever. The stock market and the dollar are certainly at odds with each other right now. A weak dollar is terrific for US companies that export goods to foreign countries. So, if you want to make money when stocks go down...you can own the US Dollar! Usually, with commodities, there is a "negative roll yield". This is just fancy talk that tells you every time the index is rebalanced, usually monthly or quarterly, then you lose a little bit of money as they roll those contracts (sell the current month and buy the next month contract). They have to roll commodities contracts because (like options) those contracts expire on the expiration date and they don't actually want to take possession of the actual commodity. This problem of a negative roll yield doesn't exist in the UUP (the ticker symbol of the Powershares Dollar ETF) because there is no cost to store dollars (as opposed to oil, corn, sugar, etc). This means that when you buy the UUP, you can really own in forever if you like.
One of two things will happen with the UUP. Either stocks will remain at odds with the dollar, and on down days, you'll see the dollar go up. Because so many people are short the US dollar, eventually those people will have to cover their short position by buying the dollar back at the then current market price. That could be ugly and you could see an amazing short squeeze (sending the UUP up huge). OR the dollar and the stock markets will decouple. This means that they can move in the same direction. When that happens, it means you can continue to own the UUP AND your stocks at the same time! So, we think, this may be something that you could hold forever. Essentially your only risk is political risk (which involves fiscal responsibility risk). Unless the US collapses, the dollar will always be worth something...and the people feel like the dollar will be much stronger in 5 or 10 years. A short covering rally in the dollar will certainly bring that to fruition.
There you go, two great ideas for how to protect a long only portfolio when you can't (or will not) go short or own options!
Wednesday, December 2, 2009
Planting the SEED: China Watch SFD, BG, SYT, MON, ADM, SEED, TSN - TheStreet TV
Planting the SEED: China Watch SFD, BG, SYT, MON, ADM, SEED, TSN - TheStreet TV
Monsanto is huge in the genetically engineered seed market. What Monsanto can do with technology just can't be done with nature. Check out this video from TheStreet.com TV to learn more about a hot company that is on our radar as a growth play going into the future. Origin Agritech Limited (SEED) is the fist company that has been granted approval from the Chinese Government to sell their seeds in China. So, what Monsanto is to the US farmer COULD be what Origin becomes to the Chinese farmer, the second larges corn market in the world. If they report a good quarter, after sales start, then you're looking at a great catalyst for this stock to move higher.
Monsanto is huge in the genetically engineered seed market. What Monsanto can do with technology just can't be done with nature. Check out this video from TheStreet.com TV to learn more about a hot company that is on our radar as a growth play going into the future. Origin Agritech Limited (SEED) is the fist company that has been granted approval from the Chinese Government to sell their seeds in China. So, what Monsanto is to the US farmer COULD be what Origin becomes to the Chinese farmer, the second larges corn market in the world. If they report a good quarter, after sales start, then you're looking at a great catalyst for this stock to move higher.
Tuesday, November 24, 2009
What to do with Retail
Today, we saw a big pop in retail stocks. I think that people are really starting to believe that Holiday sales really will be better than expected. In advance of that, we are seeing retail names ramp into the shopping this weekend. Chuck Grom, the analyst at JP Morgan Chase on Fast Money tonight, talked about getting long department stores into Black Friday and then offset it with a discount retailer. We are actually taking on half that trade and bought Grom's name: Macy's (ticker M). Macy's really has tremendous Star Power with the likes of Jessica Simpson, P. Diddy, 50 Cent, and others. I think this ultimately drives traffic into the stores and that should translate into sales this Holiday Season.
Other names that we think are really attractive are True Religion (TRLG) which has nearly $100 million in cash and zero debt; all with double digit margins. Even more, we like Buckle (BKE) because it offers a 2.9% dividend, also with double digit margins. The Buckle does have over $100 million in cash; it's actually $163 million in cash and still no debt. These retailers are very trendy and offer clothes that young people really want to wear. I don't know about you, but I rarely buy new clothes. Who does? Young people buy clothes, because they are worried about how they look (especially when it comes to the opposite sex) so they will continue to wear "what's hot". The other end of retail that should work is the higher end, because those people actually have money to spend...which is what keeps us from buying more clothes! So, you should be able to own BKE and TRLG, as well as a higher end name.
We don't know high end like we know the other segments. And there is no one more popular and knowledgeable than Patty Edwards from Storehouse Partners. In our conversation tonight with Patty we talked about the high end of retail and she felt very comfortable with a couple names. J. Crew was her number one name and she said she is very comfortable owning that name. We also talked for a while concerning the Diamond Market. We took a look at the industry from the bottom where the Diamonds are pulled out of the ground (Harry Winston Diamond Corp. (HWD)) all the way to Tiffany and Company and Blue Nile. Patty said she has personally been able to visit the facilities at Blue Nile and they are a fabulous company that is extremely well run. She said that their follow-up after a purchase is top notch and their customer service is top of the market. We know that companies that provide service to their customers like Chipolte and Panera Bread (which have run up huge). Blue Nile offers everything from a pair of earrings for $38 to a piece of jewelry that cost over $100,000; you can have both at Blue Nile (NILE). Her other name, TIF, is a testament to the high end retailer. She did have concerns about HWD, and we admit that we have them as well. But, we are value investors and $2 downside and $30 upside is a great risk reward for us. They have had a string of rough quarters and are not projected to be profitable until another 3 quarters of losses. So, it will take a surprise turnaround for this company to be profitable. Our time horizon on this is in years, so know that up front. A search for news on HWD also brought MOV out, but this company may just need to be avoided. In fact, Jim Cramer told you to sell it a day or two ago on Mad Money. But, unlike many of the American Companies, the Chinese-based Fuqi International (FUQI)has consistently grown earnings and is projected for each quarter next year to beat those numbers year over year. Plus, their Q4 is seasonable strong each year (thanks to Holiday sales). Of all the Jewelry names, FUQI seems the most dependable, HWD is our idea of a longer shot value play, and Blue Nile (NILE) is a way to play both the rise in online transactions and the return of the consumer to jewelry purchases. You may want to avoid TIF and MOV. We will not have to wait long to see how TIF is doing.
Jim Cramer did a fine job tonight on Mad Money, bringing in the CEO of Phillips-Van Heusen Corp (PVH). Let it be known that they have apparel lines that apparel in everything from Walmart* to Nordstroms. They have outlet stores, are in department stores, and across many lower end retailers. The number show that about 45% of all shirts sold are from PVH and about 50-55% of the neck ware. Those are amazing market shares and can be found in their Calvin Klein, DKNY, IZOD, Donald J. Trump Signature Collection, Kenneth Cole, and (our favorite) Sean Jean. With this lineup, you really get all segments of retail and if you want a retail play...this is good one with $7.16/share in cash. They have already said that if the Q4 goes the way they see it going right now, the'll see meaningful improvement in their margins.
So, the moral of this story, when it comes to retail, you have to own the best. There is no room to own a company that is debt laden, nor one that can't execute. I did have a conversation with a trader today that pointed out that I shouldn't hate Walmart* as much as I do because it has a fabulous online business just like Amazon does. I have been endlessly negative on Walmart* because of it's brick and mortar operations not being able to grow. But, last night, Jim Cramer pointed out that Amazon and other online transactions are only 3% of total retail transactions right now and that in the future, it could be higher, much higher, closer to 30% (not just 3% anymore). So, I'm going to have to take Walmart* out of my Sell Block and tell you that it just may be safe to own Walmart* here on that growth in online retail transactions and the fact that they continue to innovate with their financial services division. They are good executors of their business and that should benefit shareholders going forward.
So, do your shopping for retail stocks before the Black Friday numbers come out and ride it into Christmas. But, we want to let you know that when those numbers come in...if you see your stocks rip...don't be afraid to take some of those profits off the table. We are letting you know now, because we may not get around to telling you when we actually move it off the books. If we get 10% moves in any particular names, that's a great opportunity to pull the rip cord and take home those profits. Heck, then you can go shop at your favorite retail store!
Other names that we think are really attractive are True Religion (TRLG) which has nearly $100 million in cash and zero debt; all with double digit margins. Even more, we like Buckle (BKE) because it offers a 2.9% dividend, also with double digit margins. The Buckle does have over $100 million in cash; it's actually $163 million in cash and still no debt. These retailers are very trendy and offer clothes that young people really want to wear. I don't know about you, but I rarely buy new clothes. Who does? Young people buy clothes, because they are worried about how they look (especially when it comes to the opposite sex) so they will continue to wear "what's hot". The other end of retail that should work is the higher end, because those people actually have money to spend...which is what keeps us from buying more clothes! So, you should be able to own BKE and TRLG, as well as a higher end name.
We don't know high end like we know the other segments. And there is no one more popular and knowledgeable than Patty Edwards from Storehouse Partners. In our conversation tonight with Patty we talked about the high end of retail and she felt very comfortable with a couple names. J. Crew was her number one name and she said she is very comfortable owning that name. We also talked for a while concerning the Diamond Market. We took a look at the industry from the bottom where the Diamonds are pulled out of the ground (Harry Winston Diamond Corp. (HWD)) all the way to Tiffany and Company and Blue Nile. Patty said she has personally been able to visit the facilities at Blue Nile and they are a fabulous company that is extremely well run. She said that their follow-up after a purchase is top notch and their customer service is top of the market. We know that companies that provide service to their customers like Chipolte and Panera Bread (which have run up huge). Blue Nile offers everything from a pair of earrings for $38 to a piece of jewelry that cost over $100,000; you can have both at Blue Nile (NILE). Her other name, TIF, is a testament to the high end retailer. She did have concerns about HWD, and we admit that we have them as well. But, we are value investors and $2 downside and $30 upside is a great risk reward for us. They have had a string of rough quarters and are not projected to be profitable until another 3 quarters of losses. So, it will take a surprise turnaround for this company to be profitable. Our time horizon on this is in years, so know that up front. A search for news on HWD also brought MOV out, but this company may just need to be avoided. In fact, Jim Cramer told you to sell it a day or two ago on Mad Money. But, unlike many of the American Companies, the Chinese-based Fuqi International (FUQI)has consistently grown earnings and is projected for each quarter next year to beat those numbers year over year. Plus, their Q4 is seasonable strong each year (thanks to Holiday sales). Of all the Jewelry names, FUQI seems the most dependable, HWD is our idea of a longer shot value play, and Blue Nile (NILE) is a way to play both the rise in online transactions and the return of the consumer to jewelry purchases. You may want to avoid TIF and MOV. We will not have to wait long to see how TIF is doing.
Jim Cramer did a fine job tonight on Mad Money, bringing in the CEO of Phillips-Van Heusen Corp (PVH). Let it be known that they have apparel lines that apparel in everything from Walmart* to Nordstroms. They have outlet stores, are in department stores, and across many lower end retailers. The number show that about 45% of all shirts sold are from PVH and about 50-55% of the neck ware. Those are amazing market shares and can be found in their Calvin Klein, DKNY, IZOD, Donald J. Trump Signature Collection, Kenneth Cole, and (our favorite) Sean Jean. With this lineup, you really get all segments of retail and if you want a retail play...this is good one with $7.16/share in cash. They have already said that if the Q4 goes the way they see it going right now, the'll see meaningful improvement in their margins.
So, the moral of this story, when it comes to retail, you have to own the best. There is no room to own a company that is debt laden, nor one that can't execute. I did have a conversation with a trader today that pointed out that I shouldn't hate Walmart* as much as I do because it has a fabulous online business just like Amazon does. I have been endlessly negative on Walmart* because of it's brick and mortar operations not being able to grow. But, last night, Jim Cramer pointed out that Amazon and other online transactions are only 3% of total retail transactions right now and that in the future, it could be higher, much higher, closer to 30% (not just 3% anymore). So, I'm going to have to take Walmart* out of my Sell Block and tell you that it just may be safe to own Walmart* here on that growth in online retail transactions and the fact that they continue to innovate with their financial services division. They are good executors of their business and that should benefit shareholders going forward.
So, do your shopping for retail stocks before the Black Friday numbers come out and ride it into Christmas. But, we want to let you know that when those numbers come in...if you see your stocks rip...don't be afraid to take some of those profits off the table. We are letting you know now, because we may not get around to telling you when we actually move it off the books. If we get 10% moves in any particular names, that's a great opportunity to pull the rip cord and take home those profits. Heck, then you can go shop at your favorite retail store!
Tuesday, November 10, 2009
Playing a Rising Middle Class
Why does Kraft want to own Cadbury? They want to own them to benefit from the rise of the middle class. I know what you're thinking...that's crazy; and how are the two connected? Chocolate is the secret. If you read James Altutcher's book, The Forever Portfolio, he talks about the rising middle class in India, China, Brazil, and elsewhere. Guess what people with money do that people without it don't do? They eat, and they eat well...certainly better than rice and potatoes. People that struggle with money often have to skimp on eating better. So, a rising middle class means that people will eat chocolate; and to make chocolate you need sugar.
Now that we've taken you through the thesis, we're not going to recommend you pick up Kraft...we don't even know if their bid for Cadbury will be successful. But we will recommend Imperial Sugar Company (IPSU). They had an explosion at a their plant in Port Wentworth, Georgia that took nearly half their capacity offline in February of 2008. With this company about to ramp up production, we think this is a good way to play both the rising cost of sugar and the rise of the middle class. We think that the recent rise in sugar prices is a function of a rising middle class that is eating more sugary foods because they can now afford them and we want to profit from it. We also like DBA, the Powershares Agricultural Soft Goods ETF as a way to play rising commodity costs over the next decade or so. Imperial even has a dividend. It's not much, but getting paid something is better than getting paid nothing.
Let us know what you think of this idea and others by leaving a comment on the blog!
Now that we've taken you through the thesis, we're not going to recommend you pick up Kraft...we don't even know if their bid for Cadbury will be successful. But we will recommend Imperial Sugar Company (IPSU). They had an explosion at a their plant in Port Wentworth, Georgia that took nearly half their capacity offline in February of 2008. With this company about to ramp up production, we think this is a good way to play both the rising cost of sugar and the rise of the middle class. We think that the recent rise in sugar prices is a function of a rising middle class that is eating more sugary foods because they can now afford them and we want to profit from it. We also like DBA, the Powershares Agricultural Soft Goods ETF as a way to play rising commodity costs over the next decade or so. Imperial even has a dividend. It's not much, but getting paid something is better than getting paid nothing.
Let us know what you think of this idea and others by leaving a comment on the blog!
Saturday, November 7, 2009
Don't Forget to Take Profits
We would be remiss if we didn't remind you to take profits. Now, we could just remind you that you need to be listening to our Lunch @ the Markets Segments (You can listen to them here: http://linkth.at/vl) and leave you in the dark, but we'll let you in on our market discipline (not that we are the only one's in this school of thought).
When the markets roar, no doubt you will make money if you're long good stocks. I guess you could lose money if you owned $RIMM (Research in Motion) or $MYGN (if you bought it @ $30 because you listed to us late after we told you to buy it under $25). But, for most people, especially if you've been in the market since March, or even April, or May, or June, and especially July (because so much of it was spent in the red). Then you have made money. Please, don't let all that ride. Do not be a pig.
When we were in California, we had one of the advisers we work with come back and tell us a story about a client of theirs who had refused to sell $GE @ $17 and $WFC @ $31. When confronted with the brutal facts that $GE fell $3/share and $WFC fell $4/share; they said that the companies were good solid companies and they'll come back. That's true, the probably will, and in 5 years those prices might sound low. But that is not the case right now, and the bottom line is. If you're up big, even if you like the stock, you have to sell when you're up...especially if you're up big. Why not take some off the top and then, if you like it so much, buy it back after it pulls back. Nearly every stock pulls back. People didn't think Goldman Sachs ($GS) would pull back...and now you can pick it up for $171.90! That's down $20/share from the 52-week high!
Look, the bottom line: "You cannot own stocks forever." That's one of our favorite quotes from the advisor we talked with in CA. Can you imagine if you bought $GE @ $8 in the early 1990s and watch it go up over $40/share...and then DIDN'T sell it and watched it fall all the way back down to $8!?!? Don't put yourself on that type of roller coaster, and don't own stocks forever. Very few companies should be owned forever. When you have big gains...take some off at the top, or on the way up (because know one knows exactly where the top...or the bottom is for that matter). You'll have plenty of cash on hand for when the market has a rainy day and dumps a stock you like big time. That will be your cue to come in and buy. We've had a lot of fun with $STJ down 10% in one day, $TRLG down 20% in one day. You'll have to go listen to our Lunch @ the Market Segments (http://linkth.at/vl) for all our research. We work hard, but we're not going to make it that easy for you every time. :-)
We'll tell you the bottom line, because that's the way we like to shoot it, nice and straight: ALWAYS keep cash in your portfolio for rainy days, try to avoid ever buying on an up day, and please don't sell on a down day. Instead, when markets are up big...look for things you can sell. When they're down big, look for things to buy. To avoid being emotional, keep a shopping list around for these days and keep sell price targets. Heck, go ahead and enter in the limit orders to sell ahead of time so that you take the emotions out. Know what you own, and always do your homework!
When the markets roar, no doubt you will make money if you're long good stocks. I guess you could lose money if you owned $RIMM (Research in Motion) or $MYGN (if you bought it @ $30 because you listed to us late after we told you to buy it under $25). But, for most people, especially if you've been in the market since March, or even April, or May, or June, and especially July (because so much of it was spent in the red). Then you have made money. Please, don't let all that ride. Do not be a pig.
When we were in California, we had one of the advisers we work with come back and tell us a story about a client of theirs who had refused to sell $GE @ $17 and $WFC @ $31. When confronted with the brutal facts that $GE fell $3/share and $WFC fell $4/share; they said that the companies were good solid companies and they'll come back. That's true, the probably will, and in 5 years those prices might sound low. But that is not the case right now, and the bottom line is. If you're up big, even if you like the stock, you have to sell when you're up...especially if you're up big. Why not take some off the top and then, if you like it so much, buy it back after it pulls back. Nearly every stock pulls back. People didn't think Goldman Sachs ($GS) would pull back...and now you can pick it up for $171.90! That's down $20/share from the 52-week high!
Look, the bottom line: "You cannot own stocks forever." That's one of our favorite quotes from the advisor we talked with in CA. Can you imagine if you bought $GE @ $8 in the early 1990s and watch it go up over $40/share...and then DIDN'T sell it and watched it fall all the way back down to $8!?!? Don't put yourself on that type of roller coaster, and don't own stocks forever. Very few companies should be owned forever. When you have big gains...take some off at the top, or on the way up (because know one knows exactly where the top...or the bottom is for that matter). You'll have plenty of cash on hand for when the market has a rainy day and dumps a stock you like big time. That will be your cue to come in and buy. We've had a lot of fun with $STJ down 10% in one day, $TRLG down 20% in one day. You'll have to go listen to our Lunch @ the Market Segments (http://linkth.at/vl) for all our research. We work hard, but we're not going to make it that easy for you every time. :-)
We'll tell you the bottom line, because that's the way we like to shoot it, nice and straight: ALWAYS keep cash in your portfolio for rainy days, try to avoid ever buying on an up day, and please don't sell on a down day. Instead, when markets are up big...look for things you can sell. When they're down big, look for things to buy. To avoid being emotional, keep a shopping list around for these days and keep sell price targets. Heck, go ahead and enter in the limit orders to sell ahead of time so that you take the emotions out. Know what you own, and always do your homework!
Going According To Plan
So far, everything has gone according to our plan that we've had for the last 6 months. If you've had a chance to catch our Taking the Market Temperature and Lunch @ the Market Segments (listen to all the posts here: http://tweetmic.com/p/ox22alezwbd), then you know we have called this market almost step by step. We were a little thrown off when the DOW jumped above 10,000 on the 2nd day of earnings and then failed twice at 10,000. Our goal was the 2nd week of November for the DOW to find itself above 10,000...and on Monday, we should open there. Defending it may have become a tougher job than we first thought though.
Unemployment has not been a surprise. I know Meredith Whitney was on Squawk Box months ago and said 12-13% was not out of the question. We'll take 12%, but I don't know that we'll get all the way to 13%. Honestly, it's a relief that we've printed over 10% unemployment. Lets face it, everyone has thought we were there at 10% for a long time now...we were just all waiting to see the number printed. I think the fact that the market not only held it's gains in the face of that number, but we actually finished in the green...means that it really was already priced in.
We have heard MASSIVE amounts of Bullishness from CEOs like Cisco. People have called a bottom in their industries. The banks and tech have pulled back, leaving more room to run above 10,000 in the DOW. Frankly, owning Wells Fargo, JP Morgan Chase, and Goldman Sachs here makes a ton more sense than owning them at much higher levels before earnings season. We have heard over and over that normalized earnings are a joke for the banks, that real estate is horrible, no good, and very bad. I hate to point out...but the bank reserves are massive and the bank failures we're seeing now need to happen to weed out unhealthy banks. Tell me what happens to bank stocks when they start talking about net interest margins and loan growth (normalized earnings)? They are going to soar. You just wait until Jamie Dimon puts his dividend back and Wells Fargo and Bank of America return the TARP (which they will, probably in a move that will surprise everyone but those with insider information; which you will probably see play out in options). Honestly, does any one have the Vegas Line on Bank of America or Citigroup going under? For gosh sakes, AIG is profitable and look at The Hartford and Travelers...they are soaring. Don't confuse my realistic attitude with outright exuberance or that I'm sounding the all clear or that things are great. But all the negativity is a bit much. As I think about it though, all the negativity is why we've been able to keep this rally alive. As the Bears finally realize that the world will not end, and that people can make money in stocks because truly great companies will find a way to be profitable. We need someone to sell my stock to after we make all that money.
That may be the moral of my story. The terrible companies, the really bad ones that no one should own...most of them already trade at that price and you should be able to pick them out because they're low single digit stocks, or worse, less than a single dollar.
Unemployment has not been a surprise. I know Meredith Whitney was on Squawk Box months ago and said 12-13% was not out of the question. We'll take 12%, but I don't know that we'll get all the way to 13%. Honestly, it's a relief that we've printed over 10% unemployment. Lets face it, everyone has thought we were there at 10% for a long time now...we were just all waiting to see the number printed. I think the fact that the market not only held it's gains in the face of that number, but we actually finished in the green...means that it really was already priced in.
We have heard MASSIVE amounts of Bullishness from CEOs like Cisco. People have called a bottom in their industries. The banks and tech have pulled back, leaving more room to run above 10,000 in the DOW. Frankly, owning Wells Fargo, JP Morgan Chase, and Goldman Sachs here makes a ton more sense than owning them at much higher levels before earnings season. We have heard over and over that normalized earnings are a joke for the banks, that real estate is horrible, no good, and very bad. I hate to point out...but the bank reserves are massive and the bank failures we're seeing now need to happen to weed out unhealthy banks. Tell me what happens to bank stocks when they start talking about net interest margins and loan growth (normalized earnings)? They are going to soar. You just wait until Jamie Dimon puts his dividend back and Wells Fargo and Bank of America return the TARP (which they will, probably in a move that will surprise everyone but those with insider information; which you will probably see play out in options). Honestly, does any one have the Vegas Line on Bank of America or Citigroup going under? For gosh sakes, AIG is profitable and look at The Hartford and Travelers...they are soaring. Don't confuse my realistic attitude with outright exuberance or that I'm sounding the all clear or that things are great. But all the negativity is a bit much. As I think about it though, all the negativity is why we've been able to keep this rally alive. As the Bears finally realize that the world will not end, and that people can make money in stocks because truly great companies will find a way to be profitable. We need someone to sell my stock to after we make all that money.
That may be the moral of my story. The terrible companies, the really bad ones that no one should own...most of them already trade at that price and you should be able to pick them out because they're low single digit stocks, or worse, less than a single dollar.
Friday, October 30, 2009
Wall Street Lingo
I know, I know, the language we use at Magnum Opus Financial sounds just like what you hear on CNBC or Fox Business News. There is a reason for that, we want to educate you. My pledge is two fold.
1) If you continue to read the blog, listen to the Lunch @ the Market segments on the MOF News Network Radio Station (you can find it at www.MagnumOpusFinancial.com and look at the 4 little rectangles that make up the MOF News Network in the middle of the page on the left) and Follow us on Twitter at MOFinancial. If you read and listen to all of those, then I promise that you will in fact learn the lingo.
2) We commit to you that we will make videos for you on the MOF TV Station (our YouTube Channel) that will explain all of the complicated terms in easy to understand skits. Where we just can't figure out a skit we'll pull out the black board and get all teacher on you.
Between these two pledges, we pose that we will be the number one place to go to learn not only all about investing, but what to invest in. Thanks for all the feedback from those who have been looking around and learning. Don't forget to leave that feedback on the blogs and other media! We love the emails and phone calls, but we need to let others know that people are also reading/watching/listening to the same stuff!
1) If you continue to read the blog, listen to the Lunch @ the Market segments on the MOF News Network Radio Station (you can find it at www.MagnumOpusFinancial.com and look at the 4 little rectangles that make up the MOF News Network in the middle of the page on the left) and Follow us on Twitter at MOFinancial. If you read and listen to all of those, then I promise that you will in fact learn the lingo.
2) We commit to you that we will make videos for you on the MOF TV Station (our YouTube Channel) that will explain all of the complicated terms in easy to understand skits. Where we just can't figure out a skit we'll pull out the black board and get all teacher on you.
Between these two pledges, we pose that we will be the number one place to go to learn not only all about investing, but what to invest in. Thanks for all the feedback from those who have been looking around and learning. Don't forget to leave that feedback on the blogs and other media! We love the emails and phone calls, but we need to let others know that people are also reading/watching/listening to the same stuff!
Wednesday, October 28, 2009
I Own Stock, NOW What Do I Do?
So, here we are, another down day in the market. What can we possibly do with all this stock that we own?
First, you have to decide if we're done going up for the year or if this rally has one more good leg in it to get us back above 10,000 by the years end.
While we think it has become a much scarier place in the market these days, and sentiment has turned faster than a double agent...we think ultimately, by January, we're back above 10,000 in the DOW and 1,100 in the S&P (PENDING some terrible event, like accelerating unemployment, which actually could happen). If we get a surprise bad event, all bets are off down to 9,000.
How do you protect yourself against such an event? You must own puts. In order to make money in a down market...you have 3 choices: Buy short ETFs, sell stock short, or get long puts. That's it. It used to be you could hide out in bonds...not anymore, welcome to the world where it's the dollar versus everything else.
I think if you have big positions you'd like to hold on to, you really need to be long puts. If you are looking to just simply make money, I'd rather you pick an inverse ETF with a tight stop than to short individual stocks. This market has shown us that while the broad market might decline, individual stocks are back on their own...until it changes again.
If you have some nice big gains, 30-40%, please, take some off the table and hold some cash. Get out your shopping list and if something hits your buy level, pull the trigger for gosh sakes. IF YOU ARE AN INVESTOR...traders, sorry, you're on your own. If you are a trader, you probably want to play the short side for now. But, if you are an investor, and you're in this thing for the long run, then listen up to good advice: Doug Kass may be right, that we've seen the top for the year, but I think he was also right in March, when he said we may never see prices like this ever again in our lifetime.
First, you have to decide if we're done going up for the year or if this rally has one more good leg in it to get us back above 10,000 by the years end.
While we think it has become a much scarier place in the market these days, and sentiment has turned faster than a double agent...we think ultimately, by January, we're back above 10,000 in the DOW and 1,100 in the S&P (PENDING some terrible event, like accelerating unemployment, which actually could happen). If we get a surprise bad event, all bets are off down to 9,000.
How do you protect yourself against such an event? You must own puts. In order to make money in a down market...you have 3 choices: Buy short ETFs, sell stock short, or get long puts. That's it. It used to be you could hide out in bonds...not anymore, welcome to the world where it's the dollar versus everything else.
I think if you have big positions you'd like to hold on to, you really need to be long puts. If you are looking to just simply make money, I'd rather you pick an inverse ETF with a tight stop than to short individual stocks. This market has shown us that while the broad market might decline, individual stocks are back on their own...until it changes again.
If you have some nice big gains, 30-40%, please, take some off the table and hold some cash. Get out your shopping list and if something hits your buy level, pull the trigger for gosh sakes. IF YOU ARE AN INVESTOR...traders, sorry, you're on your own. If you are a trader, you probably want to play the short side for now. But, if you are an investor, and you're in this thing for the long run, then listen up to good advice: Doug Kass may be right, that we've seen the top for the year, but I think he was also right in March, when he said we may never see prices like this ever again in our lifetime.
Pullback Has Come
Well, for all the talk about a pullback, we got a small 4% pullback just before earnings season arrived and it looked like we were set to go higher for earnings. But, then it happened...the market shot up above 10,000 on the first day of earnings. What was it doing going up so far that fast after a pullback?
Our thesis had been that we would see the sell-off into earnings, but then earnings would come in better than expected, including those companies that are growing revenue and we would get another leg higher, leaving us nicely above 10,000 in the DOW at the end of earnings season. Now, we are getting just that...except the DOW hit 10,000 3 times in the first 2 weeks and now DOW 10,100 looks like the top for the year, just like Doug Kass said.
I'll admit it, we were very nervous when the world famous Doug Kass gave his warning that we were at the top for the year. Really, all we have left is November and December...how hard could it be to get through the end of the year on good earnings above 10,000. The answer: harder and harder every day.
Sure, Steve Grasso, Jim Cramer, Zach Karabell, even Joe Terranova and Tim Seymour all said we could go higher. I'll tell you what the real tip off was. Guy Adami said he called Debbi Downer back to see if she was still interested and Joe Terranova turned on a dime and sold both his Gold and Oil. For traders, that was it, that was the moment you put in your tight stops and start building cash. If we could get someone to work for free then we would have said something that night. But, people these days seem to want to make money for the work they do; and we don't like to jump the gun.
It is true, we may very well have seen the top for the year. Jim Cramer has been DEAD wrong so far about his call for Mutual Funds and Hedge Funds to mark up stuff before October is over. Who knows, maybe those fund managers are worried after Raj got arrested that the Feds might actually no longer be asleep at the wheel.
I guess it means that we might actually have to get back above 10,000 in the DOW the old fashioned way, slow and steady, as we see the actual economy improve. Jim Cramer was right about one thing for sure...a few weeks ago, in the first pullback he said he didn't see a reason for the DOW to be above 10,000; and now...I think we might just have to agree.
Our thesis had been that we would see the sell-off into earnings, but then earnings would come in better than expected, including those companies that are growing revenue and we would get another leg higher, leaving us nicely above 10,000 in the DOW at the end of earnings season. Now, we are getting just that...except the DOW hit 10,000 3 times in the first 2 weeks and now DOW 10,100 looks like the top for the year, just like Doug Kass said.
I'll admit it, we were very nervous when the world famous Doug Kass gave his warning that we were at the top for the year. Really, all we have left is November and December...how hard could it be to get through the end of the year on good earnings above 10,000. The answer: harder and harder every day.
Sure, Steve Grasso, Jim Cramer, Zach Karabell, even Joe Terranova and Tim Seymour all said we could go higher. I'll tell you what the real tip off was. Guy Adami said he called Debbi Downer back to see if she was still interested and Joe Terranova turned on a dime and sold both his Gold and Oil. For traders, that was it, that was the moment you put in your tight stops and start building cash. If we could get someone to work for free then we would have said something that night. But, people these days seem to want to make money for the work they do; and we don't like to jump the gun.
It is true, we may very well have seen the top for the year. Jim Cramer has been DEAD wrong so far about his call for Mutual Funds and Hedge Funds to mark up stuff before October is over. Who knows, maybe those fund managers are worried after Raj got arrested that the Feds might actually no longer be asleep at the wheel.
I guess it means that we might actually have to get back above 10,000 in the DOW the old fashioned way, slow and steady, as we see the actual economy improve. Jim Cramer was right about one thing for sure...a few weeks ago, in the first pullback he said he didn't see a reason for the DOW to be above 10,000; and now...I think we might just have to agree.
Tuesday, October 20, 2009
Mad Money Breakdown
Last night on Mad Money, Jim Cramer recommended Itron, ITRI for the coming infrastructure money that will be spent on the new smart grid electrical system in the United States. Our concern about Itron is the it's profit margin is less than 1% and it's operating margins are only 3.9%. On valuation, ITRI trades at a 181 P/E on trailing earnings. This means that we need to believe them when they forecast that they will earn much more in the future for their forward P/E of 17 to be accurate. Now, if they do this...then you're talking about HUGE earnings growth and being there now means you'll be there to see the stock rise. We don't have concerns about their balance sheet as they have $6.90/share in cash. That's a big pile and I bet if you backed the cash out the P/E would be more attractive. They are only levered about 1 to 3. That's very low leverage ratio compared to other companies you could own.
Why we are out here talking about Jim's recommendation is because it popped up on a price gainers list we get 3 times a day that also highlighted SVT (Servotronics) as being in the same industry segment. SVT only trades at a 6.65 P/E and actually has a 2% dividend to boot. Profit margins for SVT are 7.18% and operating margins are 10.59%...far better than ITRI. SVT is seeing Quarterly revenue growth yoy of 17.8% and quarterly earnings up 20.70% yoy. They are levered nearly 1 to 1. They have 3.14 million in cash and 4.13 million in debt so the ratio is extremely low. They have $1.62/share in cash which is a huge percentage of their only $7.89 stock price. The dividend is only $0.15 so it's more than covered. Only 5.8% of institutions own it by it's held by 66.58% of Insiders so we know they like their story.
In comparison, Itron is owned by only 0.56% of Insiders and 97.20% of Institutions. My guess is that's how it got to trade at 181 P/E and if they don't do what Jim Cramer thinks they will...there are a whole lot of people out there to sell the stock. Look there are good things about owning both stocks...but on valuation, we think Itron is expensive and SVT is right to be bought. Use limit orders because SVT trades VERY thinly and can probably be bought for $7.70. Why try to get it $0.19 lower, well with this stock, that's the entire price of the dividend.
Let us know what you think about this and our other stories by leaving a comment!
Why we are out here talking about Jim's recommendation is because it popped up on a price gainers list we get 3 times a day that also highlighted SVT (Servotronics) as being in the same industry segment. SVT only trades at a 6.65 P/E and actually has a 2% dividend to boot. Profit margins for SVT are 7.18% and operating margins are 10.59%...far better than ITRI. SVT is seeing Quarterly revenue growth yoy of 17.8% and quarterly earnings up 20.70% yoy. They are levered nearly 1 to 1. They have 3.14 million in cash and 4.13 million in debt so the ratio is extremely low. They have $1.62/share in cash which is a huge percentage of their only $7.89 stock price. The dividend is only $0.15 so it's more than covered. Only 5.8% of institutions own it by it's held by 66.58% of Insiders so we know they like their story.
In comparison, Itron is owned by only 0.56% of Insiders and 97.20% of Institutions. My guess is that's how it got to trade at 181 P/E and if they don't do what Jim Cramer thinks they will...there are a whole lot of people out there to sell the stock. Look there are good things about owning both stocks...but on valuation, we think Itron is expensive and SVT is right to be bought. Use limit orders because SVT trades VERY thinly and can probably be bought for $7.70. Why try to get it $0.19 lower, well with this stock, that's the entire price of the dividend.
Let us know what you think about this and our other stories by leaving a comment!
Monday, October 19, 2009
Fed Rate Hikes, No Way
There has been a lot of talk about the Federal Reserve needing to hike rates back to prevent inflation due to the printing presses for the US dollar being in full swing for 10 months now. Thank gosh for Anil Kashyap from the University of Chicago Business School.
Just when we thought that all intelligent thought was lost in higher education, we got to hear from Professor Kashyap this morning on CNBC. When asked about the Barron's Headline: "It's time to raise the rates, Ben" (Article can be found at: http://online.barrons.com/article/SB125573856421291217.html?mod=BOL_hpp_highlight) the Professor said: "I don't know who's economy they're looking at, but it's not ours. There is a zero percent chance that the Feds raise the rate and it wouldn't make any sense to do so right now."
When asked, "Why should they stay at zero for long?" He responded: "Because the economy is still depressed and there are no inflationary pressures." When asked, "Why not just do a small increase like 2% or even 1%?" The good Professor responded: "They can do that when the time comes. But why would you want to signal to everyone that you see something that isn't apparent to anyone else? It's not in your mandate and it would just be crazy."
Thank gosh for rational, realistic people who don't need to get reelected that can speak to the public honestly. If you didn't get to see this interview on Squawk on the Street live this morning at about 10:15, you can probably check back with www.CNBC.com later today for the video. Until then, you'll have to take our word on it. Especially because this confirms what we wrote about the DOW being back below 6500 with what is now only 73 days left...just doesn't look realistic.
Just when we thought that all intelligent thought was lost in higher education, we got to hear from Professor Kashyap this morning on CNBC. When asked about the Barron's Headline: "It's time to raise the rates, Ben" (Article can be found at: http://online.barrons.com/article/SB125573856421291217.html?mod=BOL_hpp_highlight) the Professor said: "I don't know who's economy they're looking at, but it's not ours. There is a zero percent chance that the Feds raise the rate and it wouldn't make any sense to do so right now."
When asked, "Why should they stay at zero for long?" He responded: "Because the economy is still depressed and there are no inflationary pressures." When asked, "Why not just do a small increase like 2% or even 1%?" The good Professor responded: "They can do that when the time comes. But why would you want to signal to everyone that you see something that isn't apparent to anyone else? It's not in your mandate and it would just be crazy."
Thank gosh for rational, realistic people who don't need to get reelected that can speak to the public honestly. If you didn't get to see this interview on Squawk on the Street live this morning at about 10:15, you can probably check back with www.CNBC.com later today for the video. Until then, you'll have to take our word on it. Especially because this confirms what we wrote about the DOW being back below 6500 with what is now only 73 days left...just doesn't look realistic.
Saturday, October 17, 2009
Double Dip Recession
Jon Lekas came on Kudlow Report, on CNBC, last night with his doom and gloom scenario. Lets put the facts up front and then talk. Are we going to hit unemployment (official) of 10%, OF COURSE (if you haven't factored that in then you're not being realistic)! Is the "real" unemployment already close to 20%, of course it is. Will our economy be changed forever, of course it will. The reality is that when we left agriculture, now 90% of the US does something else. When we left the industrial revolution, 90% of the world does something else now. When we left the tech bubble, millions of people lost their jobs. Now we've left the financial bubble, and we've lost major jobs in that sector.
So, what am I getting at? We cannot spend all of our time lamenting all the jobs that we have lost in manufacturing. Why is it that we talk about jobs, the first comment is always about US manufacturing. Check out the Wall Street Journal Article from August 3rd of this year titled: "China's Gains in Manufacturing Stir Friction Across the Pacific" here is the direct quote:
"Anyone who walks the aisles of a U.S. retailer might think China already is the world's largest manufacturer. But, in fact, the U.S. retains that distinction by a wide margin. In 2007, the latest year for which data are available, the U.S. accounted for 20% of global manufacturing; China was 12%." The full article can be found at: http://linkth.at/mp (We use www.linkth.at to shorten links so they don't take up the whole page)
The US Manufacturing share of the global economy is 20%! So, what does this mean? Technology is doing the work that people used to do. That's the new reality. If you want to complain about US manufacturing, please, get upset over the right thing: technology. Here's the reality about tech: It's not going away.
With technology taking US jobs, what do we do with all of our unemployed people? That is where Warren Buffett comes in. He has said, do not bet against the US Entrepreneur. We will invent new products and new industries. Those things will lead to jobs. What else will we do, invent new tech, that cause new tech cycles, that create new jobs. We cannot expect the world to remain stagnant. That means, if you have a job, you need to continue to make yourself relevant your entire life! You cannot get a job as a cashier at a grocery store, or Walmart, and expect to be doing that in 20 years. Now, I know there are some who have done that...but if it were up to us, those people would not be able to afford a house in most states, it would be hard to own a car, and they would probably be below the poverty line. Why would we say such a terrible thing? Because it doesn't require anything but (maybe) basic math skills...and not even that to run a register. If you can smile, and work a computer, then you can operate a register. Those who make technology have made a machine that can be operated with very little education. Why should that person make anywhere near what someone who spends 10+ years in school getting a bachelors, masters, and PhD and goes on to do...who knows what? That person has spent a DECADE doing something that is VERY difficult and proving themselves. They have also made themselves relevant.
Before we get 10,000 angry comments, let me address what is great about being a cashier. Go into a Walmart right now and ask the management how many of them started out as cashiers, and you'll be surprised that many of them never graduated from college or they did and still started out as a cashier or even cart pusher. But that didn't stop them and they refused to resign themselves to being a cashier forever. Good old fashioned hard work goes a long way in this country. In fact, I think it can take you all the way. The moral of the story is that you MUST keep yourself relevant or face the elimination of your job or even line of work in our ever changing economic landscape.
So, now that I've gone WAAAAAAAY out of the way to talk about jobs, let me get back to my point about the Kudlow report and Jon Lekas. He is calling for us to be back below DOW 6,500 before the end of the year! Now, if this were July and we were selling off week after week, then sure, we'll take you seriously. But please, come on. You are simply trying to convince the producer to get you on television when you call CNBC with a story like that. We only have 75 days left until the year is OVER! I really don't think it's realistic to talk about a DOW below 6500 and we haven't seen one single rate hike, any real inflation, unemployment hasn't dropped (meaning the feds will not remove the punch bowl until the party starts to end). With 75 days left, besides the feds dramatically hiking the rate, what catalyst will bring the markets to their knees? I can't think of one and I don't think any rational economist can either.
Does the possibility of a double dip recession exist next year or in 2011 if we don't get sustainable growth in employment next year? SURE! Are we in danger of a double dip if the government jacks up our taxes beyond what can be borne to eliminate the deficit? SURE! Will we be very worried if the Fed takes interest rates to 7% in 2010? YES! But I don't think any of those things will happen this year, so lets just stick to the real data and see how earnings season goes. We're only 12% of the way through, and we'll know a whole lot more after next week.
Bottom line: Jon Lekas, if you want to talk DOW 6000 or DOW 5000, please talk about next year, so you can have some time to be right if things go wrong. Everyone else, ENJOY your weekend, do your homework on the stocks that you own. If you're up big and you're worried, then sell some stock or buy some longer dated puts on your stocks so that you can sleep at night because the DOW below 6500 in the next 75 days, just doesn't seem very realistic to me.
So, what am I getting at? We cannot spend all of our time lamenting all the jobs that we have lost in manufacturing. Why is it that we talk about jobs, the first comment is always about US manufacturing. Check out the Wall Street Journal Article from August 3rd of this year titled: "China's Gains in Manufacturing Stir Friction Across the Pacific" here is the direct quote:
"Anyone who walks the aisles of a U.S. retailer might think China already is the world's largest manufacturer. But, in fact, the U.S. retains that distinction by a wide margin. In 2007, the latest year for which data are available, the U.S. accounted for 20% of global manufacturing; China was 12%." The full article can be found at: http://linkth.at/mp (We use www.linkth.at to shorten links so they don't take up the whole page)
The US Manufacturing share of the global economy is 20%! So, what does this mean? Technology is doing the work that people used to do. That's the new reality. If you want to complain about US manufacturing, please, get upset over the right thing: technology. Here's the reality about tech: It's not going away.
With technology taking US jobs, what do we do with all of our unemployed people? That is where Warren Buffett comes in. He has said, do not bet against the US Entrepreneur. We will invent new products and new industries. Those things will lead to jobs. What else will we do, invent new tech, that cause new tech cycles, that create new jobs. We cannot expect the world to remain stagnant. That means, if you have a job, you need to continue to make yourself relevant your entire life! You cannot get a job as a cashier at a grocery store, or Walmart, and expect to be doing that in 20 years. Now, I know there are some who have done that...but if it were up to us, those people would not be able to afford a house in most states, it would be hard to own a car, and they would probably be below the poverty line. Why would we say such a terrible thing? Because it doesn't require anything but (maybe) basic math skills...and not even that to run a register. If you can smile, and work a computer, then you can operate a register. Those who make technology have made a machine that can be operated with very little education. Why should that person make anywhere near what someone who spends 10+ years in school getting a bachelors, masters, and PhD and goes on to do...who knows what? That person has spent a DECADE doing something that is VERY difficult and proving themselves. They have also made themselves relevant.
Before we get 10,000 angry comments, let me address what is great about being a cashier. Go into a Walmart right now and ask the management how many of them started out as cashiers, and you'll be surprised that many of them never graduated from college or they did and still started out as a cashier or even cart pusher. But that didn't stop them and they refused to resign themselves to being a cashier forever. Good old fashioned hard work goes a long way in this country. In fact, I think it can take you all the way. The moral of the story is that you MUST keep yourself relevant or face the elimination of your job or even line of work in our ever changing economic landscape.
So, now that I've gone WAAAAAAAY out of the way to talk about jobs, let me get back to my point about the Kudlow report and Jon Lekas. He is calling for us to be back below DOW 6,500 before the end of the year! Now, if this were July and we were selling off week after week, then sure, we'll take you seriously. But please, come on. You are simply trying to convince the producer to get you on television when you call CNBC with a story like that. We only have 75 days left until the year is OVER! I really don't think it's realistic to talk about a DOW below 6500 and we haven't seen one single rate hike, any real inflation, unemployment hasn't dropped (meaning the feds will not remove the punch bowl until the party starts to end). With 75 days left, besides the feds dramatically hiking the rate, what catalyst will bring the markets to their knees? I can't think of one and I don't think any rational economist can either.
Does the possibility of a double dip recession exist next year or in 2011 if we don't get sustainable growth in employment next year? SURE! Are we in danger of a double dip if the government jacks up our taxes beyond what can be borne to eliminate the deficit? SURE! Will we be very worried if the Fed takes interest rates to 7% in 2010? YES! But I don't think any of those things will happen this year, so lets just stick to the real data and see how earnings season goes. We're only 12% of the way through, and we'll know a whole lot more after next week.
Bottom line: Jon Lekas, if you want to talk DOW 6000 or DOW 5000, please talk about next year, so you can have some time to be right if things go wrong. Everyone else, ENJOY your weekend, do your homework on the stocks that you own. If you're up big and you're worried, then sell some stock or buy some longer dated puts on your stocks so that you can sleep at night because the DOW below 6500 in the next 75 days, just doesn't seem very realistic to me.
Wednesday, October 14, 2009
DOW 10,000
We have to say, getting to 10,000 the second day of earnings season is a little nerve wracking. We were totally prepared to be there by the end of earnings season...say the second week of November...but right now...before October 15th is a little scary. I understand that technically, we can really get to 10,300 before we have technical concerns. And, it's very possible that 10,000 becomes psychological support for the market. But, we find ourselves looking to join the "too far too fast" camp. Don't get us wrong, we're long...really long, but we have cash set aside for a correction. We liked Jon Najarian's call to sell off into the close today, then we could take our time and get above 10,000 in the DOW next week. Then there's the possibility that we're going to break out from here and run a little further, especially after we see earnings from Goldman Sachs and Bank of America. If you haven't diversified, bought some currencies, gotten some foreign holdings, bought a little commodities, get fancy with some bond funds or ETFs; especially if you've been on this ride like we have since March...take a little off the top here. No one ever got hurt taking a profit. It's a little nosebleed territory right here. So, do your homework, be careful out there and by gosh, have some stops in place so that you take profit home if this thing turns down. Because, unlike at DOW 9,000...there's a lot more room to go down from 10,000.
Monday, September 14, 2009
What is short selling?
Short selling is when you borrow stock from a broker and then hope to buy it back at a lower price. Sound confusing? It won't be after you check out our latest video!
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