Saturday, November 10, 2012

Post Election Market Expectations

          Sorry for the haitus, but I was sitting around thinking about the big pull back I was hoping for in October, but that did not happen.  I was hoping for a 10% pull back, but we only saw about a 2.5% pull back.  Now that O'Bama has his mulligan intact, what should we expect?  Just for clarification purposes, the O'Bama comment was no indication that I support Mitt or the Republicans.  I am non-partisan.  Now, back to business.

          So, the market will not be good to the long or short term investor of the broad market.  All of your 401(k) accounts will take a pretty good shot, unless you are in a stable fund with a quarterly adjusted interest rate.  I do not think we will see the affect on stable funds that we saw in 2008, when they lost money for the first time in history. 

          For my portfolio of both deferred compensation and my brokerage account, I've been rotating money to safer territory and building my cash up in order to take advantage of the larger pull back that await us in 2013.  I firmly believe, as I did in 2008, that the earnings reports (even in the Christmas shopping season is a success) for 4th quarter 2012 will be poor, thus bringing the broader market down. 

          What adds to the problem, is that with O'Bama at the helm, interest rates will cotinue to stay low and deficeit spending will remain high.  Money will continue to be printed, to the tune of about $1T per year, which will weaken the dollar and increase inflation.  Investing gold and oil will help hedge against inflation.  Since wages are stagnant, it is not wise to sit and do nothing while the cost of every day staples and energy start rises at an ever increasing rate.

          There is some good news, though.  With interest rates remaining low for the next two to four years, obtaining financing will remain cheap.  The best thing to do with cheap credit is to consolidate expensive credit.  Pay down your debts, but at the same time, increase your savings and continue to invest.  For the 99% of us, that is the best way to take control of your finances.  You have to hit all the metrics that make up your finances. 

          Here is a list of stocks that should be relatively safe places to keep your money while we go through the correction.  They provide diversification as well as a hedge against inflation:

BTU
XOM
KO
JNJ
GOLD
DUK

  

Sunday, July 15, 2012

What to do in the Second Half of 2012?

So dummies, present company excluded of course, what do we do with the second half of 2012?  Well, in the irrational market that we currently deal with today, it seems like guesswork.  However, the guesswork is left to the day traders and as for intelligent investors as ourselves, you should look at the big issues in the world economy.  The three biggest issues are the debt situation in Europe, coal and natural gas. 

The debt issue in Europe will not correct itself for at least a decade.  The European Union may have to bite the bullet and disband.  You have a group of countries, that are broke, lending money to each other.  Something will have to give, since you cannot get blood from a stone.  Eventually, one of the countries will default, which will create a cascading effect that will trickle down to every other developed country, since we are all owning and are owed money from every other developed country. 

So, what do we do with the available information we have?  The hippies are campaigning for the end of coal and trying to stop hydro-fracking, despite the fact is has been proven that hydro-fracking has been developed with safe guards to protect our drinking water.  So, coal and natural gas prices are in the gutter.  Luckily, there are slew of developing countries that are craving cheap energy.  The main importer of coal is China and FYI, coal is still the largest export of the United States.  Natural gas has been undervalued for about a decade.  Natural gas will pop in about five to ten years as coal's lifespan is about twenty years, before it is replaced by solar power and natural gas.

Coal has had some developments in the past week.  Patriot declared bankruptcy and Peabody just recently finalized a purchase that makes them the largest utility in the United States, servicing over seven million people in six states.  Peabody is the long play as the stock has been killed over the past year.  I have the company valued in the $80-$90 range and it is currenlty trading at around $22 a share.  Again, the irrational market will most likely not price the stock correctly, but as with every stock today, they are not priced correctly.  This creates tremendous opportunities for saavy investor as every stock is priced incorrectly.  In the long term the stock will eventually be in the range of proper pricing.  The trick is being able to double up when the stock is beaten down and when to realize the stock is overvalued and to reduce or eliminate your position. 

Tickers for the future:

BTU
BAC
DUK
CHKE
WM
JNJ

Good luck!   

The Great Recession: Part II

Sorry for the prolonged hiatus.  I had some business dealings that needed to be addressed.  So, how has everyone enjoyed the market lately?  Well, Europe changes its story, pretty much on a daily basis.  You have to love the media, by reporting that Europe "Feels confident that it might have an answer to the debt issue."  And, the market goes up.  It is true about any good or bad news that is announced by the oh so smart media. 

The problem with today's market is that it is too easily influenced by the media.  The reason for that is today's market has everyone in it; educated, uneducated and ignorant.  Fifty years ago, you had much fewer investors in the market and mutual funds did not exist or were extremely new.  The only people invested in the market are the ones who had money and had a pretty good idea of the value of companies, because they were priced in the market much closer to the real value as opposed to the pseudo value they are assigned today.  It is more confusing today, however, there is greater opportunity to be taken advantage of, if you can anticipate the market.

Ah, anticipating the market is basically impossible, because it is so random and is affected by investors who have no idea what they are doing.  This causes all stock prices to be incorrectly priced at all times.  The saavy investor will see this and take advantage.  I must quantify this as the investor must be long on this investment.  If you try to trade in this market, just like a casino, the longer you are in and the more trades you make, you'll eventually lose. 

Saturday, May 5, 2012

Stock Tips

Ah, the ever entrancing stock tip.  So, what do you do when someone gives you a stock tip?  First, run as far away as you can or, in my experience, question why they feel this stock is going to "Pop".  I'm sure your reaction to what I have just written is, "Well, don't you give us stock tips periodically?".  To the amateur, that would be the assumption, but you have to understand what it means to be given a stock tip as opposed to investing advice.

A stock tip is given when someone tells you, "I heard on TV..." or "A friend of mine said...".  Those are indicators of stock tips.  Since I am not on TV and I am not your friend, my suggestions are supported with information to back up the suggestion. 

What are you to do with my suggestions?  You must do your homework to see if what I am spewing out is correct.  Most people are not willing to put in the research required to be an informed investor.  Is putting in the time and research guaranteed to bring in optimal results?  Prior to 1974, that would be the case, because 1974 is the year that IRA's were approved and mutual funds took off.  The market went from a pool of sophisticated investors to everyone and their mother jumping and throwing the market off kilter.  The issue with this is that stocks are inadvertently manipulated by investors who have no idea what they are doing.  Good companies get beat up and bad companies get held up by the uninformed investor. 

The bottom line of all of this is to be your own man and do your own homework.  Do not rely on stock tips and stock trends that have no back up for their reasoning.  The market overall is illogical and therefore should be ignored.  If you invest in individual stocks, there is no reason to pay attention to the DOW, S&P or any other index.  Companies stand on their own and if they are a good company, they will prevail in the long run.

Sunday, April 29, 2012

Predictions for the Next 24 Months.

So, what do the next two years hold in store for us?  Well, we can never be certain, but I anticipate that the broader market will have a pull back of about 10%-15% starting in the late 3rd quarter or early 4th quarter this year.  The main reason is that companies will start reporting poor numbers for 2nd and 3rd quarter.  This will of course trigger a sell off, but the sell off will be magnified due to investment firms taking profits as I assume they know the broader market is overvalued currently. 

Energy will be relatively flat, with the exception of coal.  Coal has been beated to death, but will start to make a comeback due to foreign markets, especially developing countries.  The reason why coal has been beat up is that it is out of favor with US investors due to new regulations coal's effect on the environment.  The problem with US investors is that their foresight doesn't extend beyond what is going on in the US. 

Oil will remain around $95-$115 and gasoline should stay about the same or possibly tick down a dime or two per gallon.  Natural gas will continue to be very low due to the lack of consumption.  That will change in about 5-10 years, but nothing material will change in the next two years. 

The situation in Europe is only going to get worse, before it gets better.  At least one of the countries in the European Union will drop the euro and go back to their old currency.  I'm better that Spain or Italy will be the first to do so.  The conditions in Europe will aide in the pull back of the broader market.

Interest rates will increase in 2014.  That is an easy one, since the Fed announced that rates will remain low until 2014, unless something changes.  That means that bonds and bond funds will continue to be overvalued and anyone who has investments in bonds, should probably get out completely or reduce their exposure, since bonds have no where to go but down. 

Unemployment will continue to around 8% even if the US economy does grow at a faster rate than it currently does.  Eight percent is the new four percent for unemployment.  Small and start up companies, which create about 75% of new jobs will not be able to grow due to the lack of funding available to them.  People are working longer, so the job turnover will be extremely slow.  Companies have adjusted to the 2008 crisis when they down-sized.  They have learned to do more with less, so most of those jobs that were cut four years ago are not coming back. 

Home prices will increase marginally as we are a good five years away from any significant increase in home prices.  The main reason is that many people are choosing to rent rather than buy.  Also, new college grads are entering a terrible job market and also are trying to manage their student loans, so most will be renting or living with their parents since they won't be able to afford to buy.

So, we are looking not too many positive things that are probably going happen in the next two years.  Not to worry, since there are always solid investments in any market.  Here are the tickers to look into over the next two years.  These are long-term investments and I have positions in all of them except for Waste Management, but I plan on taking a position after the pull back later this year.

WM, DUK, BAC, CHKE, BTU and RSO.

Saturday, April 28, 2012

Europe: Need I say More?

So, everyone is feeling pretty good that the market is still on the way up, however, in it has been a rollercoaster ride.  The problem is that Europe is still in schambles.  The latest is that Spain is screwed, even though it is the 4th largest economy in Europe.  The issue is that they are talking about a bailout, but in the age of bailouts, there is going to come to a point when there won't be anyone to bail anyone else out.  Spain's biggest issue is not the same as Greece in which the government workers had their retirement schedule and pension benefits restuctured.  Spain's problem is with their banks, and the fact that they are insoluable. 

The US survived the banking crisis, which in and of itself, was a joke compared to what would happen in Spain.  The reason for that is that the US is far more diversified in terms of available banks and that helps stem the problems caused when the there is a systematic banking crisis. 

So, the market has been increasing based on Apple and hysteria.  In a market like this, it is time to buy when there is a sector or industry that has been beat up for no logical reason.  We have to remember that the present day market is not the same market of the past.  There are more people who have no idea what they are doing, which basically throws a wrench in the market logic.  Since the market is illogical, you must take advantage of companies who have been oversold for no reason.  Peabody (BTU) is one of those.  Take a look and see if you can figure out why it is oversold.  As per usual, I own this stock and plan on increasing my position.  Good luck!

Monday, April 9, 2012

Stocks To Go Long On

Ok kids, it's time to see what the heck you can buy in a market that is overvalued.  But if the market is overvalued, how can there be good buys?  The great thing about an irrational market is that there are always good buys in an upmarket and bad buys in a down market.  The first thing I do is take a look at down sectors and try to find companies that are only down because the sector is down. 

Currently, there are a couple of sectors that have beat up pretty badly despite the run up the market has had in the first quarter of this year.  The most beat up sectors have been financial, materials and energy.  Yes, even though gas prices and electricity have been up, the sector overall is down due mainly to natural gas and coal.  So, lets take a look at these sectors and see what is the best stock to purchase from each.

First, we'll look at the Financial sector and the king of value right now is Bank of America (BAC).  Yes, I know this is the largest bank in the world, so there cannot be very much growth for this stock, right?  You are correct sir, but we are talking about value, i.e. "undervalued" companies.  BAC is trading right around $9 per share.  It is up from its low of just under $5 in the past 52 weeks, but it is still way, way undervalued.  Looking at its financials, it has the most cash and also the most debt of any company in the world.  It has about $600B in cash and about $650B in debt.  The cash total comes out to about $56 per share and BAC is currently trading at just under one-half of its book value.  So, if BAC was trading at the value of its underlying assets minus its debt, it would be trading near $20 per share.  I've always felt this company was a mid-twenties stock.  The debt is alarming, but it is mainly due to BAC taking over Countrywide.  BAC has a huge stockpile of real estate that, once housing starts to turn around will become a huge cash cow when it starts unloading its inventory.  However, BAC will be up for a decent drop next month when Moody's lowers BAC's credit rating to just above junk bond status.  All the dummies will see that announcement and start dumping BAC, which is when the savvy investor will pounce.  I currently own BAC and the most recent buy I made was at $6.61.  I've never sold this stock and am looking to increase my position after the drop. 

Next up is the Materials sector.  Peabody (BTU) is a coal company and has been beat up excessively due to the decrease in demand for coal and the new EPA standards for emissions.  I believe the reaction to the slight decrease in coal demand and the new emission regulations are not the big hurdle that investors believe it is and have overreacted by dumping this stock.  It has a 52 week high of $69 and is currently trading just under $28.  I believe this stock is valued in the $85-$95 dollar range currently, so it is trading at a steep discount.  I do own this stock and currently am looking to add to my position.  Coal is going to be around for a long time, since it is so cheap and China, India and other developing nations are going to be driving up the demand and price. 

Finally, we have the Energy sector.  Chesapeake (CHU) has been beaten up to the tune of about a 33% drop in the past year.  CHU has continued to grow its assets and pay down debt.  The ship has been righted with this company as they were running massively in the red as recently as 2009.  This stock is cheap right now and the company is on the road to success.  Plus, Chesapeake is mainly known as an oil company, but has acquired large inventories in natural gas, which will position the company well, when the demand for natural gas begins to climb as the price of oil gets too high and forces consumers to think alternative energy.  Unlike the previous two companies, I do not own any stock in Chesapeake.

Just a reminder, these are stocks to go long on.  When I say going long, I mean that you should plan on owning these stocks for at least ten years.  They are not geared as trades, but if you do try them as trades, proceed at your peril. 

Saturday, April 7, 2012

Market Correction Is Inevitable!

Of course, any vague statement like that can be justified like anything from Nostradamos.  Regardless, the market correction is coming at about a rate of 10% to 15% in the next three months.  In case you have not been paying attention, that means the broader market has been overvalued for over a year.  The job reports are insufficient to confirm an economic recovery. 

Greece and the rest of Europe are a time bomb.  Everyone seems to think that other countries lending other countries money is going to help.  But if, the other countries are trying to lend other countries money, in which, either of these countries has any money, then you have a trend that defies explanation. 

But, what do I know?  1+1 equals 2.  Not in today's world.  I have to cut this short, because it is embarrasing to be apart of such horse hockey (thank you Harry Morgan), so be it. 

Here is your long term investment.  Coal is totally out of favor.  By BTU.  I own this stock by the way, but coal is totally out of favor.  Anything else, jump ship.  Good. Luck.  I own BTU, btw.

Monday, February 27, 2012

Greece's Bailout: Delaying The Inevitable

The recent bailout of Greece orchestrated by the European Union (specifically Germany) helped Greece avoid defaulting on its debt.  The roughly $170 billion (USD) bailout helped reduce Greece's debt ratio to 121%.  Pretty sad state for Greece when the US, who is terrible with its debt, has a debt ratio of roughly 90%.  Even with the "Bailout", Greece's credit status was dropped from CCC to C.  For those of you who do not know the credit rating system, a C rating is basically a junk bond.  The sad thing is Greece is going to default anyway, so the EU just flushed $170 billion down the toilet.  Greece has made some changes to its financial policies, but more needs to be done. 

Europe is broke and the US is not doing much better.  The economic world we live in is made up of deficit spending and bailing out everyone.  The fact that deficit spending is a term that we are comfortable with is alarming.  All the politicians talk about reducing the government's deficit spending, but no one ever talks about eliminating it.  Spending has to be reduced everywere, but the geniuses in power cannot seem to agree on what to cut.  The reason why, is because they do not want to offend the special interest groups and hinder their chances of getting reelected.  We all know that the main job of a politician is to get reelected. 

On a more positive note, the market is overvalued, so we should see a pull back when investors start ringing the cash register and taking profits.  If that doesn't occur, then we'll just have to wait until Greece defaults and then we'll see the big pull back that market needs to get back to a more reasonable level.  Good luck!