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!
Friday, October 30, 2009
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.
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