Magnum Opus Financial

Why Warren Buffett thinks GE NEEDS to buy CREE

2011-04-27T07:17:00.000-07:00

Back in the day, when Warren Buffett was looking at buying Coke stock there was one thing...really several, that kept him from doing so. Coke was doing all sorts of things t-shirts, collectors items, nick-knacks, and on and on. But for Buffett, Coke was good at beverages and as soon as they largely abandoned all those ancillary businesses and focused on their beverage business he was in, and in big. Buffett has held Coke stock for decades now and will likely die with that holding.

GE is in a similar place right now as a company. They do all sorts of things: washer/dryers, consumer electronics, airplane engines, smart-grid electrical work, GE Capital (financial services) and on and on. They are a highly diversified industrial company. But, they used to be a light-bulb company. In fact, around the turn of the 20th Century, they were THE light bulb company. GE was lighting. Now, 100 years later, they have the opportunity to be the light bulb company again.

In 2012 incandescent filament light bulbs will disappear off the shelves thanks to a regulation that will leave compact florescent and LED bulbs as our only options. Right now Phillips and GE are the only real competitors in the top end of the LED spectrum. Sure, there are Chinese competitors that compete against GE at the low end of the bulb market...but then GE has manufacturing facilities in China. GE has made a large push into China so that they can have access to competitive sourcing of materials and wages. You know who else has manufacturing operations in China that may just benefit GE? Cree, a $4.4 Billion Dollar company that is the leader in LED technology has been expanding it's manufacturing capacity in China so that it can source from that market. We think GE might want to think seriously about buying this extremely well run company. There should actually be some unthought of synergies between the two companies from their China operations. GE can compete all along the lighting spectrum because of their economies of scale (whereas Cree by itself is focused on the high margin business at the top end of the lighting world).

GE is clearly on a mission to re-brand their image as the eco-friendly industrial. Their "ecomagination" portfolio of products and services should have big, wide-open arms for Cree's LED lighting business since LED light bulbs use about 1/10th of the energy that a traditional bulb does and about 1/3 to 1/2 of what the alternative compact florescent bulbs use. That kind of energy savings has GE's "ecomagination" all over it and would be a terrific addition to its product portfolio. Cree's light bulbs also last years longer than compact florescent bulbs, leading to less waste from light bulbs. Compact florescent bulbs contain mercury and are supposed to be disposed of properly at an approved disposal location. What percentage of compact florescent bulbs do you think are disposed of properly, maybe 15-20%? Just think of the ecological benefit of switching to LED bulbs which can last 7-10 years on a smaller bulb and from 20-30 years for the down-lights that go into the massively popular "can lighting" that is found in most homes. In fact, Cree's new LR6 down-light is being used in the kitchen of every new Habitat for Humanity Home. More important, at least for Buffett, is that this acquisition would take GE back to it's roots: the light bulb. The could once again be the leader in lighting...just like it was 100 years ago.

There are more synergies to add. GE's competitor in the LED lighting space is Phillips. Right now Phillips both competes with and buys products from Cree for use in their LED light bulbs. At a certain point Phillips may be able to go it alone. GE currently buys lighting components, LEDs, etc. from Cree for use in their bulbs. Why not compete on the same footing with Phillips and be vertically integrated (it'll once again bring economies of scale and improve margins in the lighting business). GE has a $214 Billion market cap and could easily swallow a company like Cree (currently $4.4 Billion in market cap), even at a premium as they have $117 Billion in cash ($11/share) of cash on the balance sheet and they have annual revenues of $152 Billion. Acquiring Cree might only be a bump in the road of GE's fiscal year...but with only 4-5% adoption of LED products so far of all the uses they could replace the future for this acquisition may be a bright one.

The synergies don't stop there. GE has a nice airplane business right now. How difficult would it be to add LED lights for those giant dashboards in the cockpits? Heck, think about how many lights there are on a plane period (isle lights, overhead lights, exit lights). Imagine the energy savings if all those could be replaced with long life LEDs...see where this is going?

While it may be a stretch to say that Warren Buffett thinks GE needs to buy CREE...GE might feel that way itself when it thinks about the real opportunity. Just think, Cree isn't exactly a slouch itself. The company has $1 Billion in cash (about $9.87/share) and no debt on it's balance sheet and the company earns nearly $1 Billion in annual revenues. They are already in key markets in China, have intellectual property leadership, and an industry best in class product. Best of all, the acquisition would provide tremendous synergies to GE and fit right into their "ecomagination" portfolio which they tout daily via thier commercials on television. They could even use the Cree "Lighting the LED Revolution" from Cree's Social Media Campaign on Facebook.

We think the deal makes a ton of sense...and we think GE would agree (lets hope they take a look). To learn more about just what Cree does, visit our article on Stocpickr.com at: http://www.stockpickr.com/cree-misunderstood-upside-ahead.html

Get out of the Game

2011-03-15T11:28:00.000-07:00

The stock market price action (that's what you see when you watch the chart of the market tick by tick) reminds me of something I said to a Seminary class years ago. I'm LDS and our youth show up each school day before school (about 6:20am) and we talk with them and teach them about the "Four Standard Works". For us, that includes the Old Testament (Hebrew Bible), New Testament, Book of Mormon, & the Doctrine and Covenants (including the Presidents of the Church).

Waking up this early (many youth are up at 5-5:30am to be at Seminary on time) is a lot to ask any teenager. Waking up early to talk about religion may even make this feat of strength even more powerful. One morning I got all fired up and told them that if they didn't believe this stuff then they are wasting their time being at Seminary. Seriously, other teenagers get an hour or more of sleep EVERY DAY. None of them would even dare wake up at the crack of dawn to go talk about their religion for 45 minutes before high school. They sure as heck wouldn't give up sex, drugs, and rock 'n' roll (OK, so we don't tell our youth to give up rock and roll...but I'm on a roll here)!

The bottom line, if you don't believe in the Church/Religion, then there is no reason to waste time living by it's standards and attending 8 hours of Church every week (3 hours on Sunday, then 5 days a week for 45 minutes in Seminary, and 1.5 hours one night a week to hang out and do something fun). To get the most out of being a member of a Church...you actually have to believe what they teach you there about how the world works.

So why all this talk about Church/Religion on a financial blog? This morning, millions of people hit the sell button this morning and I have to believe that many of those people all of a sudden "didn't believe" that they made the right choice when they bought their stock. Don't get me wrong, we sold some things we were up in this morning and exercised puts we were long (we owned the puts to protect big profits we had). But we'll be here all day. We'll be here tomorrow, and we'll be trading for clients for many years to come. Why should we play this game that so many think is rigged? We own stocks/options, we trade, because we believe it's the right thing to do.

When life gets hard, when you don't want to get out of bed...it's what you believe that will get you out of bed in the morning. It's true for the stock market and it's sure as heck was true for those kids. You must stick by your guns (when you are right). If you're wrong on a stock...then by all means, sell the dang thing. We've been trying to get investors to sell stock and raise cash for weeks and weeks now. If you did, then you can stay in the dang game right now. But if you were fully invested, all in, with no cash and no hedges...then you probably think about getting out of the game every day. You probably get sick to your stomach when you see price action like we've seen over the last 10 trading days or so.

You know what, maybe you should get out of the game. If you're "all in" with no cash, you don't know what you own (or even worse why you own what you own). If you have no cash right now and you're getting your head lopped off with no end in sight. If you just wont listen to Jim Cramer and do one hour of homework per week per position that you own...then you really should consider getting someone else to be your advisor and getting out of the game.

Stocks can be rewarding, especially when you buy on days like today (usually selling on days like today end up being the wrong move more often than it is the right move). Having conviction (on more than just your religious beliefs) often means that you're willing to stick around to earn the "easy money". That seems strange huh. The "easy money" is the money that's made when the stock gets to its lowest levels. The lowest levels on most stocks happen when the markets look their worst.

What are we doing today? Well, we are rolling positions down and out that we are simply running out of time on. With March options expiration on Friday and Salesforce.com trading at $124 and change...we can no longer wait on the 130/125 put spreads that we're short. We are rolling those down and out to April 120/115 short put spreads (and increasing the size to stay profitable).

We rolled some of the Freeport McMoRan short 50/45 put spreads we're short out to April (keeping the size and strike's the same). But, since the LOD (lows of the day) the stock has traded back above $50 so we'll hold tight on the rest of the FCX spreads we're short. We'll keep holding onto NFLX, FFIV, and FIRE spreads that we're short. In case you missed yesterday's L@tM, we're waiting until Wednesday to see where markets are before we make final decisions on those names.

We also added to Qualcomm (QCOM) January 2012 strike calls and Potash (POT) January 2012 50 strike calls. Both of these names got hit with the overall market on the open. But, since the gap down, POT is up $2/share and QCOM is up about the same $2. We want to emphasize that having cash ready on the open is when we got the best prices. The same was true for our VIX call spreads that we had on as hedges. We sold our VIX May 17/21 call spreads for $2.75 and let you know real time on Twitter when we did it. We continue to maintain our S&P500 (SPX) 1300/1275 long put spreads in case we see further decline. This $25 spread (which is nearly completely in the money) wasn't selling for anywhere near the $25 it should have been worth on the open (thanks to time value and volatility) so we will hold on until we get prices we want or it gets closer to May and it looks like we need to take action (if the markets rise dramatically).

The stock market isn't an easy place to make money. Your conviction will be tested frequently if you're around long enough. Despite the risks of loss, the opportunities to profit can be regularly found...if you're looking for them and you're ready for them. If you have done your homework, then you need to believe yourself when you see a price that you've been looking for. Don't bail on a stock you believe you're right in just because of temporary market fluctuations...believe in your homework when you do it well.

And those kids that I issued the challenge to stop coming to Church if they didn't believe it...not a single one of them took me up on it. When it comes to my stock market challenge to get out...maybe you shouldn't either.

What I learned from my Son told me to sell Intel (INTC)

2011-01-31T11:38:00.000-08:00

Like many parents, I woke up extremely early the day after Thanksgiving to go shopping for deals for my kids. I heard Toys R Us was just nuts (thankfully I didn't go there). I had my sights set larger...a laptop. I figured that Best Buy was going to give me my "best buy"...and that was true...only the people at Best Buy had been there from the night before (who sleeps out in the cold on Thanksgiving night to save a hundred bucks?). I wasn't about to wait in line only to find out that they ran out of laptops before I got to the door.

So, I headed over to HHGregg, a little known competitor that I figured would have some similar deals. I had no trouble getting into the top 50 in line and the store would be open in an hour (unlike Best Buy which wouldn't open for more than 2 hours). I didn't even know what they had at the store...I was just hoping.

When I finally got a circular, I saw that the "deal" at HHGregg was a netbook...not a notebook for $199. Why not I thought? My son is small, maybe he'd like having a computer that was "his size" so I decided not to "waste" my lack of sleep and get the netbook computer and an internet connected Blu Ray player from LG.

I was excited to give my 5 year old his first computer. He uses my wife's all the time and she was anxious to get hers back so that she could do what she needed to during the day instead of waiting until he was asleep. Finally Christmas came and we gave him the netbook. He was very excited to have his own computer...until he used it.

Most websites that are visited by little people offer free games via the cloud on websites like www.pbskids.com, www.hasbro.com, www.nickjr.com. This means that parents don't have to buy games (that they'll inevitably get bored with and never play again). It dramatically lowers the cost of giving a computer to a child (since the only cost is the machine they'll use as the internet connection is being paid for by the adults). Well, websites are not built for netbooks. Often the content on the screen simply can't be seen on that little tiny 10" screen. The "web" can't see how big your screen is. Next, this particular machine thought it would be cute to make the up/down keys toggle between page up & up. Well...in the middle of a game, pressing page up on a web-based game results in moving the whole screen up & you dieing. I don't know what other people use their netbooks for...but they are terrible. I would have thought these little computers could have been designed by use by smaller people (children).

Even with an adult using the computer, who may not be prone to playing games on the cloud, 10" screen is just too small. Heck, a notebook computer with a 15" monitor is small...but one can work with it. A 10" screen is 50% smaller than that! If you were doing text only on social websites (and maybe news), without any video...maybe...maybe. But tablets offer that and much more with a device that is frankly more powerful (especially if we're talking the iPad). I just couldn't see continuing to own this poorly designed device. I took it back (along with the Blu Ray player, that I found at Walmart* for about $30 less).

When I got back home, I sold all our Intel stock with it. Intel made an early bet on the adoption of the netbook and many of the devices contained the Atom chip. It has big time market-share in the netbook space. Everyone asked the question about cannibalization of netbooks by tablets when Apple released the iPad (again it was first to define a category). Intel largely ignored the question and said they believed the two could exist together.

I'm here to tell you that they are wrong. I almost didn't write this article, until I saw Intel's blunder this morning regarding the Cougar Point Chipset in which they basically have to recall all the devices shipped from January 9th and stop shipping devices with the chip since the chip leads to progressively poorer performance over time. The issues surrounding the Cougar Point Chip sound a whole lot like the stock...it leads to progressively poorer performance over time.

You can buy INTC (that's Intel stock ticker symbol) if you want something that'll act better than a bond since inflation will be coming eventually. The stock pays a 3.5% dividend (better than nearly all CDs and many bonds) and they have tons of cash flow, clean balance sheet, and attractive valuation. But, ultimately, their valuation is attractive and the multiple is low because growth doesn't exist anymore. Intel made a bad bet on the rise of the netbook (a device I think will go the way of the HDDVD that lost to the Blu Ray format). With netbooks only $140 or so less than a notebook...most will do what I do and spring for the full size computer and save themselves the headache of the terrible design of the netbook.

If people want a smaller device, they'll buy a tablet pc (probably from Apple). Instead of betting on the future of netbooks...it looks like Intel should have just called up Apple and asked them if they could make them a chip for whatever device they saw in the future. Instead, Intel tried to get "out front" (netbooks beat tablets to market) and ended up getting whooped by players like NVDA, CRUS, ARMH, and others who made the chips that went into Apple's now industry leading, netbook crushing, iPad. So sell your Intel and just go buy Apple. There are still plenty of haters to convert that will have to buy Apple & take it higher. Besides, Apple only has something like 14% of the personal computer market and probably less of the smartphone market with superior products. Who cares what chips they use inside...Apple is the real investment.

Intel may finally get its act together and go higher…who knows, anything is possible. But there is an opportunity cost to owning Intel…you might not be able to own Apple at the same time. For me, that opportunity cost it too high. I’d rather own no Intel and whatever size position of Apple that is appropriate for your portfolio (not more than 10% of the total holdings). My son is now much happier with his new notebook computer and I'm much happier with our bigger Apple position in the portfolio (we bought more on the big dip on the Jobs news).

Why James Altucher is Totally Wrong on This One

2011-01-11T21:52:00.000-08:00

James Altucher posted a link to his blog today on Twitter. So, like I usually do, I followed the link and read the contents of the post. I am actually a big fan of James. Ever since I saw him on "China Watch", which was a little video segment on TheStreet.com where James would talk about small-cap China stocks for a minute or so. After a while, I didn't see him on TheStreet.com so I went searching for everything James had ever written and bought a book or two of his.

Anyway, I was reading through the 10 things James learned from Jim Cramer and I was in vehement agreement until I got to #9 and I have to tell you that I completely disagree with what he said. In parenthesis, as if to sneak it by the reader, he throws out the thought that " "my last book, out in December 2008, was a total flop" to which I have to say "HOG WASH", because that is most certainly untrue.

Let me tell you another story to make my point clear. I pick up the forever portfolio because I think I like Jim Cramer, this guy James Altucher works at TheStreet.com, might as well read everything I can to give me an edge. I look up the last book from Altucher and it's "The Forever Portfolio". I read the book, cover to cover, and in it he revealed that he eats out daily and carries a pad with him. On the pad, he keeps a list of great ideas that pop into his head so that he can keep track of them. Then, he finds the right people to put these ideas into practice. James is a man that has started & failed or started and sold many businesses. He has a disease, called entrepreneurship that...if we had an epidemic in our country, could probably cure the recession in one full swoop.

Back to the story. I get this bright idea that I have to somehow become James Altucher's next big idea. That seems logical, right? My friend invites me to the World Money Show and I check out the list of attendees and low and behold, James Altucher is on the list of speakers. Now all I have to do is figure out where he's going to eat breakfast that morning, ask him about the note pad, and somehow fate will take over and my dreams for Magnum Opus Financial will all come true.

Well, I didn't see James at breakfast the morning he was speaking. BUT, I did go to his presentation and I decided to stick around after and ask him if we could have an interview with him for a new series we're launching. At the time, "we" meant me and Rachel (my wife) and this new series didn't even have a name (or a guest beyond James if he even said yes). James graciously agreed to do the interview on his latest book, "The Forever Portfolio" and I went about my day.

That night, it was raining outside so I decided to have dinner at the hotel and when they sat me down, they put me right next to James Altucher. He remembered me from earlier and we struck up a conversation. After an hour of so a good conversation we bid each other farewell and James kept his word, becoming the first ever guest of America's Favorite Trader. The topic of the show, his book ("The Forever Portfolio") of course.

We went on to book Jared Levy, Patty Edwards, Brian Kelly, Anthony Scaramucci, Guy Adami, Steve Grasso, and Jon Najarian. From our one interview came an interview series with exclusive content available only from us. The iTunes episodes of the podcast received thousands of downloads and we are getting ready to launch Season Two this year with even more shows than last year.

It doesn't stop there. Chapter 21 in the book, "Internet Forever; or, Five Mistakes I Made as a VC" helped guide Rachel and I through the process of founding Magnum Opus Financial in March of 2009, becoming a Registered Investment Advisory, striking a deal with tradeMONSTER so that we could trade capital for our clients on their newly created institutional platform (that can now be used to bring other firms on board). Episode 5 of AFT was done from Anthony Scaramucci's office in Downtown Manhattan. I have shook hands with 5 of our 8 guests and been to conferences in Orlando, Chicago, New York, and Los Angeles. We have an invitation to the prestigious S.A.L.T. Conference that Skybridge Capital puts on annually.

We have a daily show on YouTube, a Facebook Page, close to 1,600 Twitter Followers, a Blog and on and on and on. Why recount the successes of Magnum Opus Financial since 2009? The company took off last year and it all started with our very first guest on Inside the Mind of America's Favorite Traders, James Altucher. Where did I get the idea for the show? After I read about the days when James produced a show for HBO I got the bright idea that we could create a show for CNBC. The goal was to make the show so popular that someone offered us money to do it for their network. Without the book, which James apparently considers a total flop...none of this would have ensued and we'd still be wondering how we would make our tiny little company a household name.

So James, my friend, I'm afraid I'm going to have to politely disagree with you about the "failure" of "The Forever Portfolio" and it's impact on the world. They say it's not what you accumulate while you're here that you'll be judged by, but what people say about you when you're gone. Well, I am who I am and Magnum Opus Financial is what it is thanks, in large part, to the many great things I read from that book and I want to say thank you. See, James is a guy that has made himself and others a lot of money in stocks and is getting sick of writing about them. Since starting his blog, "The Altucher Confidential", he's written mostly about life lessons that he hopes to share with the world. His advice has been a rare window into the life of someone on Wall Street who has made, lost, & then made back millions. And, while his financial accomplishments are to be commended. What I think he probably sees as some of the greatest things he's ever done are found in the life of his kids, whom he writes about periodically.

The last book, and so much of his other writing are so terrific, that I hope we can have James Altucher back on the show this year to talk about his new book that should be due out in February. In fact, it just so happens that the World Money Show in Orlando, FL is coming up again; and James Altucher will once again be speaking. Unlike last time, where fate bailed me out on my shot in the dark...this time I have an appointment. I'll be having dinner with James in Orlando and I think this time, I may just be the one to bring the notepad so that I can write down all the great ideas that come out of this year's dinner conversation.

Bottom line, the last book, "The Forever Portfolio" wasn't a flop...it set my life on a course that humbles me to this day. Who knows what I'll get out of the next one...who knows what anyone will get out of it. But, people often say that if you touch just one, then it was all worth it. Well James, I may be the only one for the last book (but I doubt it) and I'm willing to bet the next book will change someone's life as well. Thanks to you for writing about so much more than stocks, more than money, more than finance. Thanks for stopping to share a few things about life with us because THAT (life) is the real commodity and so many of us are short it right now in pursuit of something else with a $ sign stuck before it. What we should all do is short all the time we waste and get long those things we can never get back in life once our time is gone like time with our kids and other loved ones, time spent with a good book, and a good conversation with a friend. Who knows if I made a dime trading anything off what was in "The Forever Portfolio". What I do know is that I'm a lot further along the road to success than I was when I started, and that book was one of the things I read on the way. I'm looking forward to dinner next month. I'll see you in Orlando my friend.

They Just Don't Get the Fed

2010-11-15T09:05:00.000-08:00

No one gets the Fed. Everyone is confused. Everyone is upset. And NO ONE gets it.

Not too long ago the Federal Reserve, which is NOT the government by the way, announced that they are embarking on a cruise, the QE2. Ok, ok, it's not really a cruise line, it's an abbreviation for Quantitative Easing, Round 2. It means that the Federal Reserve, a private corporation, is going to buy US Treasuries...and we at MOFinancial say THANK THE HEAVENS.

Lets give you a little background on the situation. For more, you can check out our older post entitled "Bail on your Bonds". Inflation is coming...seriously, it's coming. Look at food and energy prices and you'll see that inflation is upon us. You know what loves inflation? Stocks. Do you know what hates inflation? Bonds.

It's a simple: When interest rates go up (they're at zero now...sooooo, you tell me a situation in which the next rate hike isn't up), then bond prices go down. Bonds always trade with market interest rates (outside of the inefficiencies that exist in the markets temporarily). When a bond doesn't have a market interest rate, the price will decline until it reaches a market interest rate. So, as the Feds eventually raise rates to head inflation off at the gap...bonds are going to get WHACKED!

Now, here is the genius of the Fed. What's the one way NOT to lose money on bonds? That's right, hold them until maturity. Given the average age of a bond buyer (somewhere in the 50s or 60s) because of the asset class being viewed as "safe" and "conservative" , it is unlikely that these investors will even LIVE to maturity...let alone hold the asset until maturity (if they're holding 30 year bonds). When they pass away, the funds will be liquidated by eager beneficiaries who will realize what should be massive losses at that point thanks to a higher federal funds rate & inflation (which will destroy the principle value of those bonds).

Another problem? Do you really think investors will hold treasuries of the 10 & 30 year variety when they start going down as rates go up? Heck no! No bond fund manager is going to stand around and watch their fund price get hit week after week...they'll lose their jobs. Thanks to an inflow of $16 Billion Dollars last year, those guys have a lot of firepower these days to do massive damage by hitting the sell button. It'll be like yelling fire in a crowded movie theatre & watching everyone hit the door at the same time. When individual investors see what the institutional seller is doing to the price...they'll jump in and hit the panic button along with them.

What is the solution? Just take a quick look at QE2. Ben has $600 Billion in firepower to go out and buy treasuries that are floating around out there. That is enough to buy up every penny of the $16 Billion that flowed into the individual investor held Mutual Funds last year PLUS some. This gives individual investors a "buyer of last resort" to offload their treasury holdings so that they can swap into smarter investments like clean corporate debt, high yield bond ETFs, Emerging Market Sovereign Debt, REITs, and high yielding equities. All of which are better choices right now than the long end of the treasury curve...heck, better than the short end because of low yields. Because the Federal Reserve is an institution and not an individual, they can afford to hold the bonds to maturity without giving a darn about the principle since they'll collect that bond interest the entire time & will be made whole at maturity. Heck, they may even take the interest & go buy some real assets like corporate debt (which would be a terrific idea when bonds get hit as they raise the fed funds rate).

So to all you holders of Treasuries out there...individuals, PIMCO, China, everyone...go sell your US Government to the Fed because Ben is buying. You can thank him later for saving your rear end, and your retirement savings. We'll probably get some inflation out of all this...which means Ben will make your 401(k), IRA, and even your house go up in value...not a bad days work for a guy who no one but Jim Cramer seems to understand. We're with you Jim, Ben may just be the man of the Century after being Time's Man of the Year. So to Ben & the Fed leaving on the QE2...BON VOYAGE from Magnum Opus Financial!

Timeframe is Everything

2010-10-26T13:18:00.000-07:00

It was 11:31 on October 20th and I was blown away. Yesterday we were down over 200 points in the DOW and the Bears jump out of every corner they've been hiding in and tell us that the world is going to burn to the ground.

The same news stories get trotted out over & over in an attempt to level the banks to the ground. TV analysts, uninformed news casters, and nay-sayers blast negative press via every avenue they can think of to get the market to fall off a cliff.

At the end of Oct. 19th, the DOW finished down 166 or so. The day looked rough, but the market closed up 60 points above its lows with earnings from the likes of Wells Fargo, Westerm Digital, CREE, and others due out after the bell or the next morning.

All that really matters in the price of a stock (eventually) is the earnings. It's a simple math problem. Figure out what the "market" will pay for a particular stock, multiply by the full year EPS and anyone with a calculator can figure out a price target for a stock.

While there are an endless number of macro news stories, rumors, economic readings that can and will move a stock...they are ultimately irrelevant. In fact, almost (and I stress almost as the financial sector, especially the banks, have been obliterated thanks to endless negative press) everything BUT earnings is irrelevant. As a trader, or rather, a value investor who is willing to participate in the markets intraday and refuses to accept a terrible price for what I want to own; the wild swings (especially at the open) give me a chance to buy good merchandise (stocks & options) at great prices...if you're watching.

So, while I think that the wild oscillations of the market are quite overblown over the short term...I would never wish them away for anything.

Take NetFlix for instance. The stock ran up to $127, only to pull back to $98 because earnings were "bad". Well, I was on that conference call when they reported in July and we doubled down on our short put spread trade...should have added calls to it, and the stock rallied from $98 to the current level of $171. The endless negative stories on the stock were vastly overblown & the stock is up near 100% from that recent low. If you didn't do your homework on the stock, you probably were one of the sellers when the stock broke $100 to the downside & you are still kicking yourself.

How about Salesforce.com. The company reported and the stock went from $123.77 to $97.92. Again, the cloud had burst, all these stocks were going to zero, and you were supposed to hit the sell button (according to the "talking heads"). The stock is now back up above $110 and you could be up over 10% from those recent lows...or at least sold 85/75 put spreads when the stock broke $100 to take advantage of the elevated volatility in the stock.

I can go on. The Wells Fargo Conference Call was terrific because it told us that the formula is really 8 to 1; meaning that for every $8 Billion in mortgages someone tries to make a bank take back, only $1 Billion in actual real losses results. This told you that Bank of America, Citigroup, and all sorts of other banks had a MUCH lower liability than the news media has stated.

Bottom line, there is no substitute for doing the homework. Knowing your stocks, listening to the conference calls, and watching the markets often means that you are much less likely to fall prey to the endless negative news that executive producers believes is why people tune in to watch one trainwreck after another.

If you want to watch endless trainwrecks, watch the first few weeks of American Idol or go pick up an issue of US Weekly. There should be plenty of "news" that no one needs to know that "everyone" will be talking about the next day at work. But as for stocks, ultimately, the only thing that matters is what they earn & what multiple the market will let them trade with.

Anyone remember Goldman Sachs at $133 when the Government was going to erase them? Probably not because you never went long down there and missed it. Well, consider Bank of America your 2nd shot at glory...but keep in mind, time-frame is everything ('cause this story wont turn around overnight). The book value of the stock is closer to $13 and they have about $70/share of cash on hand and do business with about 50% of America's Households. I'm not saying that I'll be right tomorrow, or next week. But eventually, earnings are all that matter and BAC will have them.

How the Apple iPhone brought Verizon & AT&T to their knees

2010-10-06T19:52:00.000-07:00

Who is happy about Verizon FINALLY getting an iPhone? The answer may just surprise you...

Years ago, Apple approached Verizon about this crazy idea that they use the success of the iPod to launch their own phone. Apple wanted Verizon to carry it exclusively on their network and they said: "Sounds good...so lets see it, first." Apple told Verizon that unless they had an exclusive deal with a carrier...they weren't going to make the phone in the first place...so no upfront view of the phone...just had to trust that it would be appleriffic.

Verizon said no, they moved on to AT&T...and clearly the answer was a yes. Here we are, 4 generations into the iPhone and it has been RUMORED that Verizon would get an iPhone for YEARS now. In fact, ever since the iPhone came to AT&T it has been rumored that Verizon would get one. Today, we finally found out that Verizon is finally getting their own iPhone.

So, who is excited about this new release? It's not Verizon, it's not AT&T, and it's sure as heck not Research in Motion (the maker of the Blackberry). It's Apple. They really don't care who carries the phone...now that it's the most amazing phone in the universe. I don't think they will ever give back their choke hold on the mobile phone industry. I wouldn't be surprised if they made an iPhone nano to compete in the dumb phone market...just to steal the lunch money of the "other guys".

Ever since Apple has came into it's own in 2001 when it destroyed the diskman (remember those from Sony...wait...if you're under 20 years old you've never heard of Sony)...Apple has been destroying the market cap of companies the world over with new product introductions. You don't believe me? The market cap of Microsoft (MSFT) in June of 2001 was $392 Billion...now it's $213 Billion (down 45% since the iPod release). Let look at Dell. It was $70 Billion in 2001...enter the new iMAC...and now it's worth $25.9 Billion (down 63% from 2001).

Research in Motion, the maker of the Blackberry was at $26 Billion in market cap when the iPhone came out in January of 2007. It grew to $78 Billion in May 2008 only to see Apple release the iPhone 3G, 3GS, and iPhone 4. Their market share is now back down to $26 Million and slipping (a loss of 67%). Finally, Sony...remember, the maker of the diskman and the walkman that we all used before the iPod. They were $68 Million in market cap...now down to $31.65 million (a decline of 53%).

Apple destroys market cap wherever it goes. You cannot compete. Their products are better, faster, crash less, are cooler...and are flat out easier to use thanks to the MAC OS.

So, what happens to Verizon when they get the iPhone...Millions of people will dump their "I need a college degree Blackberry to use 25% of what this phone can do" Blackberry Storm, Torch, or whatever the heck they have and get an iPhone. People who left VZ to begin with so they could have an iPhone will flood back. In about 6 months the Verizon network will be as bogged down as AT&T. But I thought Verizon's network was the best? You put that many data hogs on the same network...you're going to weigh down the network. iPhone users are going to find out that it doesn't matter who's network you're on. Millions of people all streaming data to their iPhones constantly will drag any network down.

When Verizon can't draw new iPhone users to their "network"...guess what's the only tool left for Verizon and AT&T to fight each other with? You guessed it...price. I don't want to be around when they start a price war...well...not as a shareholder that is. It will be a race to the bottom like you have never seen before and shareholders of both companies will be in the crossfire. As Jim Cramer always says: "Competition is the enemy of profits".

But, really...all of this is old news if you saw our Lunch @ the Market from 09/02/2010. AT&T sold off on the news today 2.5%...can't say it'll end there so be careful. In case you missed Lunch @ the Market (L@tM) from September, here you go:

So, today Apple, the toast is to you! Good luck to Verizon and AT&T in their upcoming price war...may the lowest price...I mean network...win. :-)

Buybacks DO matter...eventually.

2010-10-06T19:14:00.000-07:00

It is a fact, companies often do an amazingly terrible time buying back their own stock. I mean really, shouldn't THEY KNOW when their stock is cheap and when it's expensive?

Did you know Cisco (CSCO)bought back $3.5 BILLION in stock in the January 2008 quarter? Seriously...the stock was at $24...which seems low since it was at $33.13 on 09/28/2007. But when the stock fell to $14.57 on 02/27/2009...how much stock did they buy back in that quarter? $384 Million. Is it just us or is that bad math? It seems like after buying $3.8 Billion $10 higher; they'd want to average down on their cost basis.

Well, it seems as if Cisco (and the rest of the market) are up to their old tricks of buying back large amounts of stock. In the July, 2010 quarter, Cisco managed to buy back $1.93 Billion of stock (at least they finally managed to grab it for under $24). The stock fell off a cliff when they reported earnings, under $20. Hopefully the person or firm in charge of their buybacks had his/her finger on the trigger to Buy! Buy! Buy! When it fell below $20.

JPMorgan Chase went nuts, purchasing back $18.93 BILLION in stock in the June 2009 quarter after barely registering any purchases in December of 2004 and September of 2006. If there is one firm that has done a terrific job buying back stock...it's certainly Jamie Dimon (their CEO) and his band of merry executives. The stock fell below $40...and without being able to pay a dividend, the used the capital they took in to buy back stock to return capital to shareholders.

IBM came in with $3.16 Billion a couple quarters in a row this year. Even Microsoft got into the act with $2.93 Billion in stock repurchases.

Why do you care about all these companies spending billions of dollars on their own stock? Well...the stock market works on supply and demand just like everything else in the free market. When people want the merchandise...if there is less of it...it will demand a higher price. See where I'm going with this? That's right: If companies continue to buy back their stocks & the Feds engineer inflation (which means asset prices will become inflated...they'll go up), then that means that there will be more demand for stocks. This becomes especially true if companies continue to report great earnings and if we finally see the average working American begin to fund their 401(k) again because the markets have gone up so much and they want to be a part of it.

Companies have taken so much supply out of the market that eventually, when demand returns...all these stock buybacks really will matter. That time is coming. It may even be close. But so far...it hasn't happened yet.

Below is a link to YCharts.com for you to take a look at the Stock Buyback Metrics of different companies. This site works just like finance.yahoo.com or CNBC.com except it gives you charts of the fundamental stock statistics over time like P/E, Revenue, EPS, Cash on Hand, and yes, even Stock Buybacks.

Cisco Systems (CSCO) Stock Quote and Charts

Gold's shine growing dim...

2010-08-12T14:09:00.000-07:00

There is so much talk about gold. A few months ago, the started putting in Gold ATM's in the Middle East. If that isn't the sign of a top...I don't know what is. Millions of Americans...and probably people from all over the world are long gold now, and it has to be one of the most crowded trades in the universe.

A crowded trade is when so many people are in it, that the last one out of it should expect to see losses well over 20%, maybe even over 50% before the selling is done. Let me just mention a couple things that worry me about gold.

1) Everyone owns it, and the way investments work...at least when you make money on them, is to sell it to someone else for more than you bought it. If everyone owns gold...who is going to buy yours?

2) Gold is rarely used anymore outside of jewelry. Gold used to be in dental applications...but it's just too soft (and too expensive) to be used regularly for many industrial uses. Metals like aluminum, copper, steel, and even silver, platinum, and palladium all have industrial uses (which provide a level of natural or healthy demand).

3) The demand for gold, as we see it, is largely investor driven. Every investment falls out of favor eventually...why would this be the ONE that didn't?

4) Most people own gold through the GLD or other ETF that tracks gold. Those ETFs actually have to hold the physical gold in order to track the index as a percentage of assets under management. Who in the HECK is going to buy all that gold from them when people hit the sell button? What will that do to the price?

5) Gold is HEAVILY correlated to the S&P...don't believe me, check out the video we did a few months back and see the chart yourself:

6) I spoke with Guy Adami on America's Favorite Traders about Gold and his comments were disturbing. This is a man who was the head gold trader at TWO FIRMS, who has met the biggest gold traders out there, and who "wouldn't own gold if someone put a gun to his head." For more details you can listen to the full interview here:

http://www.magnumopusfinancial.com/demystify/2010/adami.php

I think Jim Cramer is right, the world will run out of gold to pull out of the ground, and the places to get it will become more and more the most dangerous places left on the earth to go mining for them between the government risk and military risk. So, if that's the case...why not own a gold miner in that instance, especially a foreign one that may be able to avoid some of the "anti-American" sentiment that is found in places that are a little scarier in the world.

Compania de Minas Buenaventura (BVN) is a Peruvian Gold Miner with a forward P/E of 11.82, a PEG of 1.65, Cash of $444 Million with only $27 Million in debt, and pays a dividend of 1.6%. I get why people WANT to own gold...we just think you should strongly consider not doing it any way.

If the world's economy collapses, you're kidding yourself if you think I'll trade you my food for your gold. You're better off stocking up on food storage and a taser to fend people off. But, until then, consider owning a gold miner instead of the GLD or the physical metal...at least until someone pulls the fire alarm and everyone presses the sell button at the same time.

I'm Cheap

2010-07-12T01:29:00.000-07:00

By now, if you've seen any of our comments on Twitter, you probably know that we're cheap. Paying up for anything, a car, a home, a movie, and especially stocks/bonds is against our personal religion and something we try to avoid at all costs. As investors, everyone should avoid buying expensive stocks/bonds.

Specifically regarding bonds, we really only like to pay below par for a bond, being that the bond will be redeemed for par...we just find it too difficult to figure out when you get out of a bond if you already bought it for more than par. Obviously, if you hold a bond that you bought for more than par to maturity...you're going to lose money when the bond principle is paid out since all bonds end up at par by maturity. So, a quick lesson on bonds for you individual investors out there is to try and only by bonds when you can get them below par...or you may fall into a yield trap (which you can do when you buy them too far below par as well). We'll save the bond less for another day.

Today, since we were asked about valuation, and how we use it, we're going to talk about stocks. P/E and recently PEG, are the two things we use before we even look at a stock further. Often, if a stock has a P/E over 18...we just don't even take a look at it. BUT, there are a couple metrics that we use that will let us buy a stock with a P/E north of 18 and stick to our discipline.

One of the things we'll use to buy a stock with a P/E north of 18 is forward P/E. So, trailing P/E is valuation based on earnings already in the book...so nothing really to figure out there because everything you're looking at (P, E, and M (the multiple)) is real time and you can trust it. Forward P/E, that's the P/E based on either guidance from the company OR from analysts when the company doesn't give forward guidance. When we see a stock with a current P/E that's HUGE, but a forward P/E that's in our range...we get very interested. It's a simple math problem from there. For more on P/E, check out the video from our YouTube Channel on how to do the math (it's easier to watch then to write it out).

EMC is a perfect example of a stock that has a P/E of 32.04, but a forward P/E of 14.2. That's EXACTLY what we want to see. If those forward earnings come to fruition, then we could see the stock trade BACK UP to something close to 32 (since it trades there now and people still own it). So we'll say, forward earnings are $1.36 ($19.45 current price divided by 14.2 forward P/E (19.45/14.2) = 1.36 in earnings). Then, we apply a discounted multiple back on the earnings. If it trades at 32 now...what if it trades with a P/E of 20, you get a stock price of $27.39. That's about $8 higher than the stock trades at right now...we double check the PEG (that's P/E dividend by long term growth rate) and we see that EMC trades with a 0.99 PEG...so the future earnings SHOULD be higher than current earnings and the stock is actually "cheap" and can be bought here safely.

PEG is like taking the temperature for us. A stock may look healthy based on the P/E, but may actually be overheated if the PEG is too high. A PEG over 2 usually signals to us that the growth really isn't there (or there are not enough analysts out there that think it's there and so no one's model includes high growth in it) and we have to believe everyone else that values the company is wrong and we're right. We usually don't like to make that bet, so we avoid stocks with a PEG over 2.

Walking away from stocks with high P/E multiples and a PEG over 2 means that we'll often miss some of the market's hottest stocks. That's OK, those that follow us have to know that we're value managers, not growth managers over here. Every now and then we get up the guts to buy something like VMWare (which we caught for 22 points) or Amazon (which we flagged as a buy at $70/share)...but then we get off before most people do when we catch a move like that because we're value investors over here...not growth. Something like a SalesForce.com is a PERFECT example of something that we'd normally stay away from because P/E is 140, forward P/E is 60 and the PEG is 2.83. BUT, if we believe that analysts have estimates that are too low, and that the "G" in PEG could be higher, or that E will come in better than expected...that will bring down P/E (momentarily) to something more reasonable. If you believe in a strong, secular trend, like cloud computing, then owning SalesForce.com (CRM) might not be as reckless as valuation indicates (but you MUST be right about the growth and earnings). If you're wrong, and you own a stock like Google, when they pulled out of China, the decline will be breathtaking ($150 was erased off Google's stock price in a matter of weeks). Those kinds of losses can be devastating.

What is one instance when we will ignore a high PEG? When we don't need/want growth. Take for instance, an MLP (Master Limited Partnership) that we really don't care if they grow that much...we just want the dividend paid consistently. We're not that concerned about the PEG as these companies rarely grow at the rate of an Apple, Google, Amazon, VMWare, SalesForce.com, etc. Take one of our favorite, Calumet Specialty Products Partners (CLMT), it trades with a forward P/E of 11.42 (that's great for us), but the PEG is 9.41. That's a terrible PEG, but we don't expect big growth out of a company like CLMT. Look at KMP, a P/E of 34.41 and a PEG of 11.75. That is TERRIBLE if you compare it to other companies...but we own KMP for the dividend (although, KMP is now getting expensive compared to other MLPs and you may want to consider swapping out of KMP and into another MLP before everyone else figures that out as well and does it before you do, leaving you with a lower stock price). The same is true of Kilroy Realty...and many other big dividend paying stocks that don't have big growth...you can ignore PEG (except you probably want to use it to compare it to other stocks in the same category).

There are reasons to use P/E and PEG, and some reasons not to (in certain circumstances)...but, as a general rule for us...cheaper is always better.

The Blue Box

2010-07-10T22:23:00.000-07:00

Best Buy is toast. The other week at the office, we had a conversation about Best Buy...and it's hard not to think that they're in trouble. Their most recent quarter, although not the horror show that some analysts say it was...was something to be concerned about.

Circuit City is gone, and for several quarters, it was clear Best Buy grabbed all their customers. The stock rocketed. But then, after the most recent quarter, we starting thinking about what might go wrong with Best Buy. Losing money is always the bigger risk when managing money than not making enough. People are generally happy, as long as they don't see red. Black is the new green these days.

So, after seeing the stock decline, selling the stock, then cashing out of the puts...we're left wondering what the future holds for Best Buy. Their biggest risk: pre-packaged media. That's the HUGE section of the store right in the center for movies, music, and games. That's right...going the the store and buying the ACTUAL CD or DVD will soon disappear. And with it, go great margins, revenue, and ultimately profit dollars. Granted, Best Buy announced on the call that they will be beating up GameStop and stealing their lunch money (they're going to start buying, selling, and trading of used games). This new strategy will help offset some of the revenue lost from other media sales...but it will only delay the inevitable: people shop online more an more these days. We visited the local Best Buy to see what computers they had in stock when it was time to get a new laptop at the office. It was clear that we could get far more from a NewEgg.com or a TigerDirect.com than we could by going into the store...and we're willing to bet we're not alone in what we have found.

iTunes has revolutionized content distribution along with NetFlix. If other companies don't catch up, they will be eliminated...Circuit City style. These two companies are taking a huge bite out of Best Buy's pre-packaged media sales with their direct download to consumer programs. So, what is the solution you say, for Best Buy?

Best Buy needs to buy BlockBuster Video. BLOKA.PK (because it now trades on Pink Sheets after it was delisted) is in a world of hurt. Holleywood Video has already been eliminated (Movie Gallery) and BlockBuster is next. Why? Thanks to CoinStar...the creator of the Red Box, brick and mortar movie rental places are getting burned to the ground by these little red boxes with little overhead, no healthcare costs, and loads of profits. BlockBuster has already countered with the Blue Box...but it's too little too late. The ENTIRE MARKET CAP of BlockBuster's stock is now only $36 Million. Heck, for that price Best Buy could take a stab at it and be wrong and still come out OK...but I think that they'd come out better than OK.

First of all, the color schemes are almost identical, so very little in terms of branding would need to be done. They could change the name or leave it, and I don't think people would notice.

Second, all that space they now have in their stores can be converted from pre-packaged media into a BlockBuster. They keep only the hottest selling music in stock (same thing with DVDs, which BlockBuster already sells) and then throw in the buy/sell/trade for music, movies, and games (since they're getting into the act with video games...no reason to stop there). This should be a much better use of the space in stores and they need more revenue/sq foot in the stores because media sales are down so much.

Third, BlockBuster already competes with NetFlix via it's in-the-mail-style rental package. Jumping with both feet into the content distribution for Best Buy should help margins and bring a serious competitor to NetFlix. You can easily see sales reps cross selling the down loadable content to those ready to walk out of Best Buy with a new television. Best Buy can work with the makers of the products it sells to add capability to the televisions, pick a video game partner...the sky would be endless. Deals like buy a television and get access to our downloadable content free for 3 months (after which the billing starts) would help subscriptions skyrocket for the BlockBuster division of the company who already has the service...they just need Best Buy's distribution.

Finally, having a Blue Box outside EVERY Best Buy all over the world means that they have instant revenue Red Box style. I think Blue Box even has a deal with Sheetz, the gas station extravaganza that draws all sorts of people with it's selection and variety of things inside. Adding a Blue Box to the outside of every Best Buy should ADD to the foot traffic inside the stores as some will ultimately venture into the store to shop after they grab a movie. Or, you can see them buying a new BlueRay or Home Theatre and grabbing a movie on the way out.

BlockBuster may have $1 Billion in debt...but it looks like their free cash flow is $650 Million...plenty of cash coming in to refinance the debt with the financial backing of Best Buy behind it. The issue for BLOCKA.PK is that on their own...they face extinction and they just don't have the balance sheet to make it. At 16.5 cents/share for BlockBuster we think Best Buy is missing out on a great opportunity grab a perfect, complimentary asset...at a block buster price (and it's a move that might just save both companies).

Financial Television is Like a Comic Book Series

2010-07-03T11:48:00.000-07:00

People don't watch enough television. Seriously, I hear people all the time who say that so and so recommended a stock on television and all of a sudden it's down and they've lost money and they want to know what to do.

They're getting it all wrong. Television isn't one long buy/sell list for investors to watch, execute the trade, and then get rich. That's now how television works. If you read our article earlier "They Are Idiots", then you know that when you buy a stock from someone, you have to make the bet that they are an idiot...otherwise you are the idiot; as they convinced you to buy something they didn't want anymore. Guess how many other people are watching EXACTLY THE SAME THING you are watching right then; and you now have to trade with AND against these people to make money.

Say Steve Grasso comes on television and says he's buying BP, which he did. And then you go on vacation, forget about the real world for a week, come back and check on your BP position. You see that it's down from $34 to $27 and think: "What the heck happened to BP? That Grasso guy is an idiot, I'll never listen to him again." This is where people go wrong. A few days later, after getting long BP, Steve Grasso, Patty Edwards, and many others on the Fast Money Desk stated very clearly that BP had gotten too difficult to measure and that there was too much risk in the trade and that they had sold their position and were not going back in.

Watching television, at least financial television, is like reading a comic book. If you don't read every single issue that comes out, you are GOING TO MISS SOMETHING. That detail that you miss, could cost you hundreds or thousands of dollars. Like reading a comic book, it's important to read a few issues before you form an opinion. The biggest mistake (one of them) retail investors make is in thinking that a stock is going to run away from them, so they jump in when they hear a convincing story on say Jim Cramer's Executive Decision Segment, where he has a CEO from a company come on and tell you what's new and exciting about their company. Then, Cramer says he likes the company, the person is so excited, they go and buy it the next morning at the open (often the time that people pay too much and get crushed by the end of the day).

What they have forgotten, or not witnessed, is that on ANOTHER episode of Mad Money, Jim Cramer vehemently warned viewers to always wait 5 days before buying a stock, never buy your whole position at once (in case the stock goes down and you can get it for cheaper), and always use limit orders so you get the price you want. But, the person who buys this stock after the Executive Decision segment missed the other shows about disciplined investing and ignored all of Cramer's rules for buying a stock. They exclaim that Steve Grasso and Jim Cramer are idiots and they never buy another stock again (or they repeat their mistake after listening to someone else on TV).

The bottom line, you MUST watch EVERYTHING before you buy ANYTHING. Shows like Fast Money, Mad Money, Strategy Session, and Stop Trading are terrific; but they are often just one piece of a much bigger puzzle that needs to be pieced together before you buy or sell a position. There will never be any substitution for doing your own homework. When you watch someone on television they will ASSUME that YOU, the viewer, has heard everything else they have said or written. They have to do that, otherwise, they would say the same thing every single time that you watched them. This wouldn't help anyone...and it certainly wouldn't be entertaining. So, next time, before you make a decision that costs you thousands of dollars, "read up" and watch a week's worth of whatever program it is you're watching until you understand how each person trades so that when they change their mind on BP, Research in Motion (RIMM), or Goldman Sachs (GS) you'll be there to see it and then you can change yours too...after you do your homework of course.

No Hope for the Weary

2010-05-10T13:07:00.000-07:00

I sat next to someone on the plane from California over the weekend and I was struck, nearly dumb by his comments. He spun a tale of conspiracy, paid-off government, oligarchs, financial misgivings, bail-outs, smoke and mirrors, uprising, chaos, and civil war. By the time he was done telling his tale I only had one question: "Why do you live in the United States?"

Seriously, if our country is so horrible and terrible, which he attempted to convince me in under 10 minutes, then why live here? He then answered that, at least for now, Americans believed in the "Rule of Law" more than any other country and as long as the government can keep us in the matrix, then the "Rule of Law" will govern us, even as we're free to rebel and overthrow our government (which he thinks oppresses us and keeps us impoverished because the government is owned by the banks and the oligarchs, of which I get the impression he thinks Warren Buffet is one). I couldn't bring myself to learn more about his twisted view of our world and I really couldn't stand the thought of another 10 minutes of terror if I asked him to tell me just who the oligarchs are. He made mention of Warren Buffet's deal for Preferred Stock with Goldman Sachs (which I get the impression that he thinks was done with fire and blood in a dark room with everyone wearing robes and fancy handshakes) and that was enough for my taste.

I felt like saying something that you'll hear Guy Adami say frequently on CNBC's Fast Money: "So what's the trade?" Seriously, all this conspiracy stuff is great for movies (if you like that sort of thing) but how do you make money? If the world is going to fall apart, or we're going to have a genuine populous revolt, shouldn't their be a way to profit from it? I know that sounds terrible, but one thing I've noticed since I started managing money (professionally) 6 years ago was that I was able to reduce everything to dollars and cents. It has made me much less emotional and that's how I'm able to think in black and white regarding decisions the people I advise/manage/work with is by eliminating my emotional attachment to the subject and look at it objectively.

Jim Cramer is great at reducing any caller's question to one thing: "Is the stock going to go up or down?" "It doesn't matter what your cost basis is," is something we've seen him tell dozens of callers and write in his books. It only matters whether or not you think the investment (of any kind) will go up or down. If you know/feel/think/believe that it's going to decline or there is significant risk to such, then you just sell it and look to allocate your capital elsewhere.

"Hope is not an investment thesis," is something I've heard several times, from both Guy Adami, Jim Cramer, and many others. I had a call, just today, and I was told "I know that solar power doesn't really make economic sense right now, but I'm really hoping that in the future we'll have cleaner energy and I want to benefit from it financially." But, his thesis was ultimately that he would like to see clean energy be successful and so if his hope is realized, then the stocks of solar companies would indeed rise in value.

Unfortunately, no matter what people want the future to look like, when it comes to your money, that should never be part of the thought process. The only two things you want to know are Guy Adami's "what's the trade" and Jim Cramer's "is it going to go up or down from here". If you can answer these two questions, then I think you can be successful as an investor. Do not find yourself investing in what you'd like to happen; but rather, what you think will make you money. It's fine if you will not put money into companies that you think are morally reprehensible, but you certainly shouldn't make the connection between buying something like Massey or BP and wanting to the world to burn on the use of dirty, unsafe carbon fuels. It means that the stocks went down and they're tremendously oversold and represent very attractive investments because all the bad news of the two events and MUCH MORE are now "priced in" to the stock's price. That's it, with investing, it's about doing just that...investing...making money.

Bottom line on this story, when it comes to where you place your capital to invest in your future, try to ignore what you'd like the future to look like and try to think about what you think the future probably will look like, and go with the latter. Now, when it comes to your social causes, where you donate your time and money...that's when you get your big heart out and give back to the world you live in. When you are being charitable, it helps to get out a big bag of hope and spread it like salt on mashed potatoes.

So lets recap: 1) When it comes to making money, ignore what's said on the news, ignore your friends, please don't listen to anyone at the office, do your homework, and make sure you feel like it's going to go up based on what you learn from doing your analysis before you invest. 2) When it comes to hope, make sure you have a lot of it as this world is a tough one and you'll face many challenges ahead, but make sure you check your hope at the door before you sit down in front of your computer to trade because "hope is not a valid investment thesis."

PS. Stop watching the news, and try putting CNBC on mute for most of Power Lunch unless Steve Grasso or Fast Money is on and when the market closes, you can come back at 5pm to take it off for 2 hours.

They are Idiots.

2010-05-03T16:05:00.000-07:00

Every now and then I talk to people who think that when you buy the stock of a publicly traded company, that you buy it from the company. Heck, it happened yesterday. So, the first thing I tell them is that a company only sells stock a few times in its existence...say 1/2 a dozen times or so...maybe more if it buys a lot of other companies. If it does this, by the way, you should be concerned. Read Jim Cramer's book: "You got screwed" about how Enron went down and you too can be worried about companies that endlessly acquire other companies (think Oracle...don't know if it's different in their case, but they are serial acquirers).

So, the bottom line of the above comments is that when you buy a stock, you buy it FROM another person or institution. That's right, you could be buying stock from someone on your very street that you live on...who just sold it to you. Now, why would someone sell you their stock if they thought it was going to keep going up? That's right, when you buy stock, you MUST assume that the person who sold it to you is an idiot. If you don't want to be that mean, you have to at least politely think that they are wrong, very wrong. Otherwise, the loser in the transaction...is you. If you are wrong, and they are right, then the stock will go down and you'll lose money, and they'll laugh all the way to the bank.

This is where the title comes from. You have to believe that the people who sold you your stock are idiots or you're about to lose money. You're about to lose serious money if you don't have the guts to cut your losses and watch it go to zero. I know these are strong words, but I'm trying to help you avoid seeing your investments go to zero. It means that you have to do your homework. You have to listen to the conference calls. You have to watch CNBC, read books, and read company balance sheets and cash flow statements. You have to do all of that, or someone is going to make an idiot out of you.

Now that you understand how buying stocks works, you can understand how insane it is that everyone insists that Goldman Sachs should have disclosed to the buyer of the Abacus paper that John Paulson was on the other side of the trade. ARE YOU KIDDING ME? Name one time you bought a stock and didn't know who sold it to you. How about EVERY TIME! It happens every day in the market. The only one who knows who is who are the market makers who put the trade together and that's how it should be. Can you imagine if you knew every time who was selling and who was buying? You want to see some real manipulation, try requiring firms to disclose who is on what side of the trade. I have never heard of anything so stupid in my life! Look, everyone has the right to be angry when things are done wrong. Everyone should feel hurt when you're taken advantage of. But this Goldman Sachs case has gone too far. Do you even know what kind of money you MUST have before they'll even deal with you? This was not someone buying the Abacus paper on E*Trade from someone for $7.95 or whatever they charge. The group putting the security together got to toss ANY mortgage out of the SIV (Structured Investment Vehicle) they wanted to! Can you believe that part of it? So, who's really to blame that it went south? I don't see the millions of people who were stupid enough to buy GM stock before it was declared worthless coming out and filing a lawsuit against GM. Jim Cramer told people for months that the GM paper was worthless...but that didn't stop people from trading it.

Just because someone loses money in the stock market, or any other capital market like commodities, options, SIVs, CDOs, RMBS, CMBS, MBS doesn't mean something was wrong or criminal. No one is exempt from doing their homework, especially not people with money who can hire other people to do their homework for them. When this buyer asked Goldman Sachs for the product, they didn't ask their advice on it, they asked them to have someone make the product. John Paulson was willing to do that and go short the product. Who says the IBM you bought today wasn't someone who borrowed the shares and sold them short to you? Heck, you may be the person to sell it back to them when they cover since you have the exact amount of shares they'll need.

Sometimes investments are complicated. Sometimes people lose money. But you always have to do your homework, no matter who you are or what you're buying...and you'll never know who's on the other side of the trade...at least not in a world that's fair. You just have to hope that the person or institution that sold you the investment, is an idiot.

We Need More Laws...Well, At Least Better Ones

2010-02-13T09:52:00.000-08:00

Usually, asking for lawmakers to make laws never happens...at least by normal people. Don't get us wrong, there are plenty of legislators being hounded by lobbyists every day for this piece of legislation or that. But what about good laws? Are there things we could be doing to help this country move forward?

You bet there is!

Recently, we saw Aubrey McClendon (CEO of Chesapeake Energy) and James Rogers (CEO of Duke Energy) go at each other on stage at the Wake Forest University. If you want to see some of that footage, you can check it out right here (courtesy of our YouTube Channel) (Just be sure to turn up the sound on your computer as we're sitting about 10 rows back).

In this video, you'll hear Jim tell Aubrey that he is agnostic about where he gets the fuel to fire his power plants. What? How can that be? Doesn't he want to be clean and green with his power? Doesn't he want to save the planet, lower carbon emissions, and plant trees? Nope...well, at least unless he can plant trees tall enough to hide his nuclear power plants from view. His number one goal is to find the cheapest energy sources that will supply consistent, reliable power to his customers.

Why does he take that stance if natural gas has 50% of the carbon footprint of coal? Because we live in a Pro-Black Lung Coalition world in which the Coal Lobby in Washington is one of the oldest, strongest, and most powerful Lobbying groups out there. They have convinced Washington to create "coal friendly" legislation so that they can keep providing their "heroine" (that's what Aubrey called coal after Jim called natural gas crack cocaine) to utility companies. Until legislation is changed, it is clear that neither Jim Rogers at Duke Energy, or any other energy company CEO is going to change over to natural gas (despite it being cleaner) unless they know that it will be supported by legislation.

Years ago, about 2 decades ago, congress momentarily made it illegal to use natural gas to fire power plants because it was in short supply and they wanted to make sure homes had it available to heat and cook. This event created the opening for the coal lobby that no one has been able to close to this day. Coal is cheap, abundant, and it offers the "unicorn myth" that one day we can do CCS (Carbon Capture and Sequestration) and make "clean coal".

Well, while that has never happened yet, we are getting natural gas out of shale properties all over this country from Texas to Pennsylvania and in plenty of places in between. There is said to be around 100 years of natural gas in the shale formations in the US...enough for us to run everything off of natural gas until we can make the switch to wind, solar, and water. You can read more about this from The PickensPlan, just click on the link.

Also, you can watch the videos below, which break down what we saw take place between Chesapeake Energy (CHK) and Duke Energy (DUK) at the Energy Conference.

While it's certainly up to us to learn more about the different fuels and their use in providing us with power; one thing is for sure, until legislation allows "fracking" or horizontal drilling explicitly, no matter how clean natural gas may be, power companies will not use it to fire power plants until the legislative uncertainty is removed.

The other thing that is very clear now, is that our Country needs a new economy. We think it has to come from Energy or Technology. Health Care is already 1/6th of our economy. The Service Sector is huge right now. The Defense Sector can grow in terms of preventing Cyber Warfare, Anti-Virus, FireWalls, X-Ray Machines, Full-body Scanners, etc. But, in order to get us back to anywhere close to a 5% unemployment rate...we're going to need to create a new economy. We can't simply put more people to work doing what we already do as a country because businesses will not give up the productivity they currently enjoy. Profits are getting better and better. The last thing corporate America wants to do now, is to go back to declining profits. That means we need a new Energy Economy and we need the help of legislation to set a long term energy policy for our country.

It doesn't have to be perfect, but we need to lay out the case for how different fuels will be used over time. A longer term energy policy will give CEOs enough certainty to make decisions that will take 5-7 years to implement. Jim Rogers stated that he will replace every single plant he has right now in the next 40 to 50 years, every plant. Can you imagine the jobs that would create today if CEOs had a blueprint for the future of legislation. We have heard for weeks on CNBC and other channels that legislative uncertainty means that companies will hire less and spend less. Well today, Aubrey McClendon and James Rogers just proved it.

Please contact your congressperson and senator today to let them know that we need to remove legislative uncertainty and get started putting people back to work.

What does a Year Supply of Food, a 72 Hour Emergency Kit, and Stocks Have in Common?

2010-02-13T06:58:00.000-08:00

The value of the dollar may be one of the most talked about issues on Wall Street, and in Political Circles on Main Street. What does a "weak dollar" mean for the US and for it's citizens.

For American companies, it's fabulous. It means that the rest of the world can buy our goods for less. That usually means that, as a country, we will sell more goods because they are more competitive internationally. There are many more consumers outside the US than inside of it. If we are to prosper as a country, we will have to export and in large amounts. As international companies convert foreign currency back into US dollars, they get more for their money on account of the exchange rate; especially if the US dollar has weakened from the time they sold the goods and collected payment.

How does this all relate to inflation? Inflation occurs when your dollar buys less in the future than it does today. Many people feel like the act of printing money by the Federal Reserve Bank is what leads to inflation. That is just simply not the case. Just because money is created, does not mean that it will find it's way into the hands of those who will spend it. We hear all the time about how we face hyper inflation if we keep interest rates at zero for an extended period of time. But, we also hear how banks are not lending...well...at least not to sketchy lenders. Without lending that not so "easy money" to borrowers, there is little risk that inflation gets out of control.

So, how does inflation really happen? Say you buy a house for $150,000. Just two years later you hear about someone desperate to buy a house in your area, and he/she is willing to pay top, top dollar for that house. You personally find out who it is and have them over for dinner. You offer to sell them your home and all of your furniture for $175,000 because you agree to move out in 10 days. Now, all of a sudden, when real estate agents run comparables of your market and find out that a house just sold for $10,000 to $15,000 over market...now every home in that market is "worth" more money. When the next buyer pays $170,000 for a similar home, inflation is born. See, inflation happens when someone is willing to pay "too much" for something and then all similar sales follow suit.

If I wanted to buy a Toyota Prius in 2004 when the 2nd Generation Prius (2005) Prius came out, there were literally waiting lists in California to buy that car. People were actually buying the car and then reselling it if they were able to get the HOV Lane sticker (that allowed you to drive your Prius in the HOV lane by yourself in California). People were paying OVER the sticker price for a Toyota Prius in 2004 and 2005. All of a sudden, this car was experiencing inflation and it had nothing to do with the Feds printing money. When someone "pays up" for something, inflation is born.

So, the next time someone insists that the Fed is printing money, you ask them where you can get yours, because until that money gets in the hands of those who will spend it, you will not see inflation. In this environment, the Federal Reserve is much more worried about deflation. That's where no one has money to spend and there are all sorts of things to buy. You may hear the term "slack in the economy". That means we have much more production capacity than demand and it causes producers to sell their goods for less just to generate cash to stay in business. A deflationary spiral is MUCH worse than inflation. They say inflation is too many dollars chasing too few goods. You know what that's called in economics? It's called demand. Regardless of how it happens, when people want something and they are willing to pay more than the next person...inflation is born.

So, what do you do when inflation strikes? I can tell you what you do not want to do, and that's own bonds that have lower interest rates or are going to mature shortly. Without having a much longer duration or an above average interest rate, you could see your bond price get whacked, hard, in order to bring the yield in line with the market's interest rate.

Lets take a look at Zimbabwe's situation in which they experienced hyperinflation:

Highest Monthly Inflation Rates in History Country Month with highest inflation rate Highest monthly inflation rate Equivalent daily inflation rate Time required for prices to double
Hungary July 1946 1.30 x 1016% 195% 15.6 hours
Zimbabwe Mid-November 2008 (latest measurable) 79,600,000,000% 98.0% 24.7 hours
Yugoslavia January 1994 313,000,000% 64.6% 1.4 days
Germany October 1923 29,500% 20.9% 3.7 days
Greece November 1944 11,300% 17.1% 4.5 days
China May 1949 4,210% 13.4% 5.6 days

Source: Prof. Steve H. Hanke, February 5, 2009.

This compares Hungary, Zimbabwe, Yugoslavia, Germany, Greece, and China. Besides Zimbabwe, only Yugoslavia's inflation is in recent memory. Hungary, Greece, and China were all in the 1940s and Germany's inflation was in the 1920s. The data above shows you the country of inflation, the date experienced, the highest monthly inflation rate, the inflation seen on a daily basis, and the time it took prices to double. In just over 24 hours, prices doubled in Zimbabwe for a month.

So, what do you hold when inflation hits? If the answer isn't bonds, it certainly isn't the currency itself. What is left to hold?

That's right, you're looking at the Zimbabwe Industrial Index over the period of 12 months. Stocks themselves, are the way to fight inflation...or at least keep pace with it. See, when you buy a banana for $1 today and inflation is 5% over the next year, that banana will cost you $1.05 the next year. Imagine you hold IBM at $120 and inflation sets in at 5% and at the end of the year, your IBM stock is worth $126. What if hyper inflation sets in and inflation goes up 100% over the course of the year? Your IBM stock goes from $120 to $240. When inflation sets in, it's really everything that goes up...but it's only because someone is willing to pay it.

If the President came on TV and said: "Do NOT pay more for a gallon of milk than $3.50," and people listened...we would not see inflation in the price of goods. Just because something happens geopolitically or economically, does NOT mean that people have to pay that price. The supermarket tries to take advantage of the fear, and they mark the goods up. As soon as someone pays that price, it causes a panic and people rush to spend their hard earned dollars on goods that cost too much. Inflation is more about a lack of discipline that it is about some macroeconomic force pushing the cost of goods to unreasonable levels. It just takes one undisciplined person to make that purchase, and now everyone else seems to be willing to say "that's the new price." That is how inflation is born. If you wanted to sell a loaf of bread for $10 today, very few people would pay it. If you said that we will all be snowed in for 2 weeks under 8 feet of snow...I bet the grocery store could get $10/loaf of bread to the highest bidder. Someone with money, who waited too long to go grocery shopping will end up paying that price for bread and then everyone else will be worried they might have to go without, and then they pay that insane price...inflation is born.

If everyone went to the store together and said, we refuse to pay more than $4...and the store wouldn't sell it at that price, everyone should walk away. When the store realizes that no one will pay that price, what happens? They have to lower the price until demand appears. See, inflation is really about supply and demand, not prices and the availability of money. We call it inflation and deflation, but it's really simple. If someone will pay a certain price for it, that's what it cost. It's purely driven by demand. If the demand isn't there, the price will fall. If the demand is there, prices will rise. Instead of acting independently of each other, consumers should really act together to get a favorable price for their goods. Hmmmm, sounds familiar, how about Walmart*? They are the single largest consumer in the world and they determine the prices for many of the worlds goods. Why? Because they control demand.

What do you do to make sure you're in a position never to "have" to pay up for something? How about save money out of each paycheck so that you can buy goods an an opportunistic time like a sale or with a coupon? Invest in stocks with dependable dividends that will grow over time with good business models and great cash flow. Keep a 72-hour kit so that when disaster strikes, you don't have to run to the store to buy basic goods because you have them. Keep a years supply of food and rotate it so that you're not "forced" to buy food during a time of panic at unreasonable prices. If Zimbabwe taught us anything about how to handle inflation, it's that stocks should do just fine.

You don't have to take our word for it. If you want to read more about the state of the economy and how the US is recovering, our friend James Altucher has a great article in The Huffington Post. You can read his article here: "Why Ron Paul is Wrong"

Don't forget to leave your comments, we'd love to see a brisk conversation about this topic! :-)

Bail on Your Bonds

2010-02-12T20:15:00.000-08:00

In this time of market turmoil, it is imperative that investors understand the risks that now exist in bonds. Bond price and bond yield move inversely to each other. That means, when bond prices go up, the yield goes down.

The yield is just a fancy word for the interest payment or the dividend payment as you might think of it in stocks. Unlike stock dividends, which can fluctuate according to the profitability of the company; bond yields are determined when the bond is written. Say you have a bond that pays $60 annually and sells for $1,000. That bond has a 6% yield, not bad.

Well, when that bond goes on sale, the price will fluctuate according to the interest rates available in the market at the time. If real interest rates, or market rates are 4.5%, then you'll most likely see this bond issue trade "above par". That means that the bond will trade north of $1,000 because it offers a higher than market rate interest rate or yield. If the bond trades all the way to the "market rate", the bond will be worth $1,244.33. That's a 24.4% increase in the price of the bond! This is how people make money in a deflationary period by owning bonds. This is what we have seen this year as $500 Billion has gone into bond mutual funds.

Owning bonds when rates are low is terrific, as they offer terrific safety and even a chance for a capital gain, on top of the interest you will earn. But what happens when interest rates are on the rise?

That's right, when interest rates rise, if you are holding a bond that offers a smaller interest rate than the market rate...the bond price has to decline in order to bring up the yield on the bond. So, take a bond with a 3% interest rate, when market rates are 4.5%. The same $1,000 bond will have to trade down to $754.38 just to have the 3% yield rise to the market rate of 4.5%. What happens if interest rates rise more than 1.5%? Let us just say that you do not want to have a large bond portfolio when interest rates or inflation sets in.

This is why Jim Cramer says holding a massive portfolio of bond mutual funds is just reckless. If you hold an individual bond, you always have the option of holding it 'till maturity, ensuring that you are given the principal back. You can also wait out a turbulent interest rate environment if your time until maturity is far enough out. But, if you have something with a shorter duration and a lower interest rate, you face significant risk to your principal. We are not saying that you shouldn't own bonds. In fact, based on your age, risk tolerance, and diversification needs you probably want to own some bonds. But, when things change, and you hold a mutual fund of bonds...what do you think that fund manager is going to do when rates change or inflation appears? The answer probably isn't hold the bond until maturity. All of that selling across that $500 Billion of bond funds will be like yelling fire in a crowded building...probably not the best thing for your principal.

So, before you buy bonds this year, think about what might happen in the future and choose carefully.

Minerals, Miners, and More OH MY!

2010-01-07T09:52:00.000-08:00

Gold has been hot, real hot, and no one even uses it. Gold, unlike other metals, doesn't really have a use. People make jewelry out of it, but that's really it. We know that the base metals like iron, steel, copper, and zinc have heavy industrial uses in all sorts of things from infrastructure, transportation, and appliances. But even the other precious metals like platinum and palladium have uses.

Platinum is used in laboratory equipment, electrical contacts, electrodes, resistance thermometers, dentistry equipment, and even catalytic converters.

Palladium is used in computers, mobile phones, multi-layer ceramic capacitors, component plating, low voltage electrical contacts, SED/OLED/LCD televisions; and in destry, medicine, hydrogen purification, chemical applications, and groundwater treatment. That's a heck of a lot more than you can say for gold. Because pure gold is chemically unreactive, it's uses are limited. It does resist oxidative corrosion, but that's about it.

Now that you know about the metals, how do you play them?

As the platinum and palladium ETFs become available, we like North American Palladium, symbol PAL, and Stillwater Mining, symbol SWC. Think about the GLD, the gold ETF that tracks the price of gold. It has become the 6th largest holder of gold in the world! That’s more than Japan, more than China, More than the ECB, more than Russia, more than the UK, more than Venezuela. Ok, you get it, it’s holding a TON of gold. With the creation of the platinum and palladium it’s hard to imagine that those ETFs will not become large holders of those metals just as the GLD has done for gold.

Because platinum and palladium actually have uses in the real world, beyond jewelry, investor demand for these metals could push their prices up significantly. In order to play that, we are long SWC and PAL. Take a look. You can obviously wait for the ETFs to be issued, and trade on the US exchange, but we are going to play them directly through the miners as the miners are levered to the price of the metal and you’ll see them go down more on a decline and up more on a price gain.

For industrial metals we own Alcoa (AA), US Steel (X), and Nucor (NUE). You can play copper aluminum and zinc without stock by using the Powershares Base Metals ETF (DBB). We'll have a link to Powershares up soon on the MOF Home Page under Investor Tools on the Investor Education Section. You can get gold and silver from PowerShares in the DBP. They also have a miners ETF with PSAU.

Finally, for an individual Gold Miner, we do like BVN. The closer you get it to $30-$32 we think the better. It does have a small dividend, but their cash flow is great, nearly half a billion dollars and about 3 times as much cash on hand as they do debt on the balance sheet. That's always a great sign for us. Forward P/E is only a 13.94 so valuations are not stretched, although the current P/E is a 25. So, look for a pullback, or buy just a little here and build your position on pullbacks. You can own the equipment company Bucyrus International (BUCY) And don't forget about BHP Billiton Limited (BHP), probably the best Miner in the world.

Don't forget to leave comments on this and other posts and check out what's on the YouTube channel by clicking a video on the right!

Lunch @ the Markets

2009-12-29T17:05:00.001-08:00

Going Nowhere

2009-12-15T05:23:00.000-08:00

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).

When is Boring Good?

2009-12-11T11:49:00.000-08:00

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!

Planting the SEED: China Watch SFD, BG, SYT, MON, ADM, SEED, TSN - TheStreet TV

2009-12-02T07:56:00.000-08:00

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.

What to do with Retail

2009-11-24T15:07:00.001-08:00

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!

Playing a Rising Middle Class

2009-11-10T16:19:00.000-08:00

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!

Don't Forget to Take Profits

2009-11-07T21:21:00.000-08:00

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!

Going According To Plan

2009-11-07T20:54:00.001-08:00

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.

Wall Street Lingo

2009-10-30T07:47:00.000-07:00

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!

I Own Stock, NOW What Do I Do?

2009-10-28T13:21:00.000-07:00

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.

Pullback Has Come

2009-10-28T13:10:00.000-07:00

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.

Mad Money Breakdown

2009-10-20T11:40:00.000-07:00

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!

Fed Rate Hikes, No Way

2009-10-19T07:13:00.000-07:00

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.

Double Dip Recession

2009-10-17T05:52:00.000-07:00

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.

2009-10-14T22:28:00.001-07:00

This is what we wished we were doing right now. Kids always have the
right idea. Instead, we are up late eating dill pickle flavored
pringles and creating the Youtube Channel, The Radio Station, and the
Blog so that when you wake up in the morning you will have all new
content to access!

2009-10-14T22:18:00.001-07:00

Here we are at Magnum Opus Financial up WAY too late trying to make
sure we deliver fantastic content to you every day, through as many
mediums as possible!

2009-10-14T19:30:00.000-07:00

Normally, there are some really good things in this segment, but to be honest, you probably want to avoid everything that's a pop in this video...except maybe the Sea Lions. Don't know what I'm talking about, watch the video!

DOW 10,000

2009-10-14T18:28:00.000-07:00

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.

What is short selling?

2009-09-14T19:24:00.000-07:00

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!