Monday, December 31, 2007

2007 Performance/Results

Well, 2007 is in the books, and its time to see how we fared. The Nasdaq led US stocks with a 9.8% return. The Dow returned 6.4%, and the S&P returned 3.5%.

Last year at this time, I recommended 10 stocks for 2007, and cumulatively, they returned 20.77%. Not bad. The losses were due to weakness in banks and a bet of housing turning around that obviously didn't happen. Here are the results for each of those ten:

Apple (AAPL): Up 133.47%
Bank of America (BAC): Down 22.72%
Capital One Finance (COF): Down 38.48%
Chevron (CVX): Up 26.93%
Cemex (CX): Down 23.59%
Garmin (GRMN): Up 74.27%
Johnson and Johnson (JNJ): Up 1.06%
Lowe's (LOW): Down 27.38%
Suncor Energy (SU): Up 37.79%
Textron (TXT): Up 45.84%

Also, I have the results for my blog picks portfolio. It is fairly diverse, and isn't specifically weighted in any sector more than another. It is just stocks that I've written about over the course of the year. That returned 6.69% overall. Major gainers include: Apple, CNOOC, BHP Billiton, Chevron, Noble Drilling, and T Rowe Price. The biggest losers were: Granite City Food and Brewery, Amgen, and Capital One. I'll update each position's gain or loss, which is displayed on the right tab under stock portfolio/performance.

I've made a few picks for 2008, but will put together a list of ten to twelve names like last year, as well as track the overall portfolio and newly added energy picks portfolio.

Hope everyone has a profitable and prosperous 2008!

Sunday, December 30, 2007

2007 Recap/Look Ahead

2007 was a year of incredible volatility in the markets, and presented an environment where probably only the most experienced investors had highly profitable years. Combining the volatile swings in the market with the high level of panic in the media, it was a tough year to hold onto your core investments as an individual. The major indices will finish higher for the year, with financial stocks obviously being the biggest lag. The international growth story continued as the world's financial market is becoming more diverse, complex, and fluid. Lots of international investment poured into US equities, particularly in struggling banks and brokerages. In past decades, most would throw up a protectionist wall, but things have changed. Thanks to vast resources, countries now are producing the wealth to compete on a global scale economically. The rise of China as a world power continued, but we're also seeing great things out of countries like India and Brazil. I don't see any reason why this can't continue.

2008 will be similar year for stocks. The stumbling of the US economy has been highly documented, and in my opinion, somewhat overblown. Employment has been solid, as well as productivity. Our corporations are gaining new business because of these aforementioned growing economies. Interest rates are very cheap, which will continue to help balance sheets and corporate expansion. The housing market has been very difficult, but like any market, a correction was due. Banks took on a lot of risk because of their confidence in the financial markets. Some of this proved to be foolish, but people will always be looking for an edge. When markets fall, everyone is affected. Some banks have remained better capitalized than others, so there may be some consolidation in the industry if further turmoil arises. There is no great way to measure the value of CDO's and mortgage backed securities. Most analysts have assumed the worst, and that they are all worthless investments. There are some great values to be had in 2008 in financial companies.

Whether our policies on energy are right or not, they will continue under this regime. They are committed to subsidizing ethanol, and the boom in agricultural-related products will continue. This has caused undue inflation in my mind, but we'll see where it goes. Alternative energies are what the rest of the world is going to, and that is also where I want to be invested. Wind power, biofuels, and solar power will all be profitable. Elsewhere in energy, oil will still be profitable. I'd lean away from big oil as they may come under excess scrutiny and taxes if the US sees a major shift in next fall's elections. But oil services and offshore drillers will be immensely profitable.

Technology will continue to do well, but only in pockets. Companies that continue to innovate will always do well, in good markets or bad.

I will go into more detail about individual picks and their story, but here is the "first draft" of picks for 2008:

Noble Drilling Corp. (NE)
Manitowoc Corp. (MTW)
Potash Corp. (POT)
Credit Suisse (CS)
Morgan Stanley (MS)
Schlumberger (SLB)
Global Water ETF (CGW)
Agribusiness ETF (MOO)
Alternative Energy ETF (GEX)
SAP Software (SAP)
Cisco Systems (CSCO)
Apple (AAPL)
News Corp. (NWS/A)

Thursday, December 27, 2007

Looking for Opportunity/Update

The market is moving mostly lower on a day with some negative, but mostly non-significant data numbers. There continues to be a battle among the brokerages and banks, each downgrading each other and cutting price targets. This is an element that is interesting. Brokerages have to make recommendations on stocks, but what happens to their opinions on their own company or their direct competitors? It seems tough to believe what one says about the other, and the only brokerage people seems to be trusting right now is Goldman, as they were the only ones to profit from mortgage troubles.

The energy stocks I recommended are really taking off. Here are the results so far. This is only in one week!

None have dropped. Potash up 19%, Mosaic up 14%, Monsanto up 10%, Diamond Offshore 10%, Transocean 10%, Schlumberger 9%.

I think these names are getting overheated in terms of price. Their earnings are growing rapidly, but that is all getting priced into the stock. I'd wait for a pullback before stepping in.

Monday, December 24, 2007

Cash Infusions

In a time of year where most of us could use a cash infusion, Wall Street's biggest brokerages are all getting them. The interesting thing to me here is where the money is coming from. Sovereign wealth funds from overseas, particularly the Middle East and Asia. This is truly a testament to how strong the global financial system is, and how far we've come. Imagine this happening even five or ten years ago, let alone 40. There would have been public outcry and a protectionist wall thrown up. The same goes for those crying over the exporting of manufacturing jobs. It doesn't mean our economy is getting worse, its actually getting better. We are leaders in technology and skilled work, and the quality of our workforce is increasing. That is what will give us an edge in the future when more countries are on the same level as we are economically.

So as we head into 2008 and beyond, we need to embrace the rise of other economies, not shun them. As far as today's action goes, there are a few buyers out there, and little volume is allowing them to have an impact. Don't put to much into what happens today. I like the trend though.

By the way, the energy portfolio has exploded in the past few days, up 5.5% collectively in less than a week! I'd be careful on the agriculture stocks here, they are getting a little overheated. I'd wait for a little pullback to get in there.

Have a wonderful Christmas!

Thursday, December 20, 2007

Energy Issues for the Future

I've always been very interested in energy issues, and have been studying the current events and where we're headed in terms of energy. Energy is important for economic, political, and environmental issues. With the rise of new powerful economies, specifically China, the demand for sustainable energy is even more important. The U.S. has relied on oil rich countries in the Middle East and South America for oil simply because it was cheap and easy. Now it's neither. These countries have begun using their resources to gain power in the political realm. And who can blame them? The bottom line is that the U.S. has to now become the leader in new forms of energy.

There is a lot of debate to which type of energy is best. The current administration has been adamant about promoting ethanol. Mostly because we have the resources (specifically corn) to produce it. But they made an error in judgment here. Because we've subsidized these programs and have used the corn for ethanol, food prices are going through the roof. Look at the prices of milk, flour, almost any basic food staple. But as investors, we have to find out how to profit from this. This brings me to my first 2008 energy investment, agribusiness. Fertilizer companies are coming out best here. Mosaic (MOS), Potash (POT), Monsanto (MON), and others. Most of these stocks have increased already, but they will continue. I actually like an ETF to play this trend in case any specific company has trouble, I like to be diversified. Market Vector's Global Agribusiness. (MOO).

Now, on to the rest of the world. Most countries, aside from Brazil using sugar cane for ethanol, don't have the resources to look at this trend. They are investing in wind and solar power. I personally like wind the best. Europe and Canada are leading in this trend, but there are plenty of wind farms popping up in the U.S., in Texas, California, and Upper Midwest. It is a clean energy source that is completely renewable. The leaders in this technology are conglomerates. General Electric (GE), German's version Siemens(SI) is also there. I like the Danish company Vestas, but they don't trade via our stock exchange. In my region, Xcel energy (XEL) is a leader in wind implementation, and just came out with a plan to increase the level of activity. I'd invest in any of these, and to invest in Vestas, look at Market Vectors Global Alternative Energy ETF (GEX). It is heavily weighted with Vestas, as well as some solar companies.

Now I can't write about energy without talking about Oil. Its not going away anytime soon. I think that refiners and diversified companies will be under pressure from the government, especially with next fall's regime change. I could see lots of new taxes and requirements facing these companies. But oil is in big demand. So I like offshore drillers and oil service companies. I've talked a lot about drillers. Their earnings are exploding right now. Here's the three to look at. Transocean (RIG) just merged with Global Santa Fe to become leader in the industry. Lots of rigs in the Gulf of Mexico. Diamond Offshore (DO) and Noble (NE) are the other two. I've liked Noble better because they have more rigs in the Middle East and Asia than the others. Its also trading cheaper than the others. The next few years will be very profitable for these companies as their day rates are unbelievable and rising.

Also, the oil service companies that explore for new drilling areas, and provide technology for these drillers. I like Schlumberger (SLB) here. Also, Baker Hughes (BHI).

These are the trends that I see for energy heading into 2008 and beyond. There is a lot of money to be made investing here, and I'll be in on it. I'll make a new energy portfolio with each of these names, and will update the blog with its performance.


Disclosure: Author currently owns Noble (NE).

Wednesday, December 19, 2007

Market Moving as Expected

More issues in the financials, and today its Morgan Stanley. About what we expected. Took on too much risk, more write-downs etc. But isn't this what we wanted them to do? Aren't they supposed to be one of the few companies with a global reach and can get into markets no one else can? Obviously they could have chosen to go about things differently, but wasn't Goldman taking a big risk by shorting mortgage-backed securities? Goldman just happened to be right. These businesses have to take sizable risks, and unfortunately this time around, almost everyone got pinched. But they'll live to fight another day. Morgan Stanley is one of the best in terms of global reach within investment banking. If you're looking to buy a broker long term, I'd be in Morgan or Goldman.

With the bad news out, the markets breathe a sigh of relief, even if the news was bad. It is the fear of the unknown that drives markets lower, not the fear of the already known.

There will be more market turbulence because of how many people are convinced we're heading for a recession. This talk is helpful if you're a bull. But you have to be selective about what you're buying. So I'm saying buy specific sectors rather than an index.

I'm working on some ideas for where to invest in 2008, and those will be posted in the next week or two.

Tuesday, December 18, 2007

Cautious Optimism

Stocks are reaching a pretty attractive point. I'm not surprised to see the negative sentiment continue through the media. The media can be helpful, but most commentators give us a good idea of what not to believe. Lets face it, if they were really good at predicting trends in the market, they wouldn't be in the media, they would be managing money. If you look closely at the major brokerage projections for 2008 S&P results, the average is a gain of 13.11%. But no one wants to believe that.

Take a second to look at Ken Fisher's Market Minder column yesterday.




S&P projections courtesy of Bespoke Investment Group.

Friday, December 14, 2007

Negative Sentiment Aplenty

The inflation numbers came in higher than most expected. Inflation is one issue that has concerned me, because if it gets out of control, it will erode the consumers ability to spend. If the consumer stays strong though low unemployment and manageable inflation, the market should avoid recession. As far as other issues, I continue to think the credit crunch has been overblown. We're talking about assets that are very difficult to value, so everyone just assumes the worst and that they all went bad? I think this is why banks, Citi specifically, are agreeing to take on more of these loans. The same with the private equity groups. They are taking advantage of panic in the markets, and buying assets at incredible values. But at the same time, this doesn't necessarily mean that these banks are buys for you and me. There will be future uncertainty, and their stock prices could easily fall even more. But in the next few months, I think there will be tremendous opportunity.

Aside from that, there is just too much negative sentiment out right now to have a drastic effect. Major corrections and bear markets begin with euphoric sentiment, not cautious.

Thursday, December 13, 2007

Why Private Equity Will Win

Looking at the mess in the financial markets right now, I've been trying to come up with where the buying opportunities are at. Right now it seems all banks are just trying to get the "evil buzzwords" (sub-prime, CDO, etc) off their sheets. They will continue to unload all these assets at prices way below their worth. This is done because they have to answer to the public. Every move they make is being scrutinized. The banks are willing to do anything right now to alleviate the short term pain and fear investors have. Thats why the private equity firms are going to come out on top. Right now they are analyzing these assets and buying them at pennies on the dollar. Look at the deal Citadel got on Etrade's assets. Now I see Blackstone is putting together a fund to buy loans and CDOs. They've got the ability to recognize what is a value, and they are taking advantage of the fear in the market to lock in massive future profits. Is this making Blackstone (BX) a buy as we head into future market uncertainty? Time will tell, but right now, its beginning to look that way.

Here's the Bloomberg article from this morning.

Wednesday, December 12, 2007

Post-Fed Analysis

I applaud the Fed for their move yesterday, and not caving in to the people clamoring for a .50% cut. There is still too much information that needs to be seen. Many economic measures are holding up nicely, and there is no indication that we're set for a recession. Yes, there is a liquidity problem with the banks, but there are many other portions of our economy that are doing quite well.

Some notes on portfolio holdings:

Manitowoc (MTW): The crane company I've like for awhile. They guided earnings up significantly for both 2007 and 2008. Lots of positives for this company. The stock is up 9% this morning.

AT&T (T): Raised their outlook and share buyback yesterday. This company is clicking on all cylinders. Apple iphone is helping. This news also bodes well for a company like Cisco (CSCO), and stock I'll probably add on any weakness.

News Corp. (NWS/A). They are due to close on their deal with Dow Jones this week. I'm hoping for some weakness in the stock price due to that. Sometimes when a company acquires another, shareholders don't like it because it adds debt, which means less near term money for shareholders. But I like the long-term prospects for this company. They are building a brand that is now going to have a major business news presence.

Monday, December 10, 2007

Stay the Course

Stocks are rallying again this morning on the potential of a rate cut tomorrow. I'm not even sure if the market needs the cut. The question is what is going to happen when the Fed makes it clear that they're going to stop cutting rates? Is it like the rug is going to be pulled out? It shouldn't be. The market is strong enough on its own, and should be allowed to re-price itself based on the risks that exist.

I continue to like stocks with international exposure, but I wouldn't totally disregard US stocks. There will be some buying opportunities in US financial stocks, and I'm thinking that the time to buy those will probably be Q1 or Q2 2008. You can buy them now because a lot of downside has been taken out, but I think there will be a little more shakeup when they report year end 2007 numbers.

If you're inclined to buy a financial stock, I'd take a look at Credit Suisse (CS). If you're looking US, try none other than US Bankcorp (USB).

Friday, December 7, 2007

Friday Trading

The jobs report came in a little better than expected. This leaves uncertainty over next weeks potential rate cut. This is proof that our economy is much stronger right now than the media is trying to convince us. The reason this report could be taken negatively is because it could have taken a .50 point cut off the table. I still think the market is in rally mode. Too much negative sentiment and too little actual negative news.

I'm looking to buy on any rate-cut associated pull backs.

Wednesday, December 5, 2007

Strategy Continued

Being short term bullish continues to be the best strategy. The sentiment has been much to negative, and I've focused on that as factor for stocks to run higher. The Fed appears poised to cut rates again next week, although I'm not sure its necessary. Productivity stats continue to come in strong, showing the increasing efficiency of US businesses. The outlook does remain somewhat cloudy for the US, but what does this mean for stocks? The short answer is nothing. We've got to continue the strategy that has worked. Look for companies with revenues in growing overseas markets. Also, focus on strong brand names.

I see value in a company like Cisco (CSCO). They are tremendously positioned in international markets. Their outlook has been questionable because of a potential decrease in spending in US financial companies, and this has allowed the stock price to be beaten down. This gives investors an opportunity to buy a stock with good potential for a good price. The key is determining how much potential is there for a slowdown in US revenue. I see it as a positive risk/reward scenario based on current valuations.

The biggest risk in the US is not letting the market correct itself. There will probably be more pain ahead for a lot of banks, and there will be some buying opportunities. They are cheap now, but I think there will be more opportunity soon.

Brokerage projections for 2008 S&P results are almost all higher.

Monday, December 3, 2007

Interesting Diagram

In case anyone was questioning the demand for these cranes I've talked about, take a look at this diagram of skyscrapers under construction. Also look at how many are in Dubai. Wow.

View the diagram here.

Image courtesy of skyscraperpage.com

Market Opportunities

Here's a few items that I'm thinking about today:

1) I'm weighing the prospects between a fair amount of negative indicators vs. just plain negative sentiment. The key is determining what is a threat to the economy, and what is just perma-bear chatter. I like that the Fed is being more open with their opinions on the economy. I don't like their willingness to promote over-legislating. If the market needs a rate cut to keep liquidity manageable, then fine. But if its just to prop up the market because we're heading into an election year, then I don't like it. I don't like the talk of legislating to either re-negotiate or freeze rates on sub-prime mortgages. The banks made mistakes in issuing these loans, and people who couldn't afford them made mistakes of making these purchases. Both groups deserve the consequences. Most people don't get bailed out for making poor decisions, and this case should be no different.

2) Is the emerging market boom going to continue? Signs right now point to a normal correction, with further gains ahead. There is simply too much growth as these economies develop, and the markets have to keep up. But we can't overlook the effect that a US recession would have. That's what makes this a difficult call until we know more about the US situation.

3) I'm looking at Japan for an investment. I've covered this in a post or two earlier. If the Yen gains versus the Euro, then money will head back into Japan as investors who borrowed there will pay off their loans. Most stocks there are attractively valued, and would could be the next group to benefit. It is a good hedge against a reversal of the Yen carry trade. I would play this opportunity through an ETF, like I do with most international investments. Symbol here is EWJ.

4) Here's a couple of companies I'd like to establish a long position in, or add to a current position.

News Corp. (NWS-A) They are closing on the Dow Jones deal in December. Owning these publications will give them a big boost and will correlate with newly launched Fox Business Channel. I also love the prospects for myspace.com. Based on what facebook.com was paid for a portion of their business, myspace carries a huge future value for News Corp. I'd like to buy this stock under 20.00.

SAP Software. (SAP) I've discussed this company a fair amount here. I like their global reach, as well as their domestic business in Germany. I just feel there is so much business infrastructure growth that they will have to benefit. I also like their new strategy to work with mid-size businesses as well.

Manitowoc. (MTW). I currently own a small position in this crane manufacturer. They have a great reach into growing economies, particularly Dubai and India. They are a global leader in all types of cranes, and have a backlog way out for purchases. I'd like to pick up more shares if the market declines.

That's all for now. Have a great day!

Disclosure: Author owns shares of Manitowoc Corp.

Saturday, December 1, 2007

Some Weekend Reading

We've got a couple of interesting weeks ahead to close 2007. Here's a couple of good articles I've found for some weekend reading.

A great profile of the Citadel deal with Etrade. Courtesy of The Wall Street Journal.

An article about the government potentially freezing rates on certain subprime loans. Added regulation is not a good idea for the market. The market should be allowed to correct itself and re-price risk. Courtesy of The Wall Street Journal.

An article talking about sentiment, and what it means. I've talked at length about how negative sentiment is bullish. Courtesy of The Wall Street Journal.

An article about how to succeed in the future of business. A nice article from a good magazine. Courtesy of Portfolio Magazine.

And one crazy idea. Yikes! Courtesy of Reuters.

Friday, November 30, 2007

Book Review- "Alwaleed" by Riz Khan


As an avid reader of investment books and biographies, I've decided to add another element to the blog and review various books that I've finished that might be interesting to readers.

I've just finished "Alwaleed", a biography of the billionaire Prince Alwaleed bin Talal. Alwaleed is best known for high famous investment into Citigroup in the early 1990's. This is a move that saved the bank when it was in financial trouble (much like now, ironically), and it put him on the map as an investor. Alwaleed is considered by many as the "Warren Buffett of the East." Although he's shared the level of success as Buffett, he is much different overall. The prince has surprised many people in both Saudi Arabia and the U.S. by bridging the gap between two countries that don't have the best relationship, especially post- 9/11.

His background is rather interesting. He is a member of the Saudi Royal Family, but his mother's family is also politically connected in Lebanon. His parents divorced when he was young, so he was raised in both countries, which helped broaden his horizons. He got his college education at Menlo College in California. This was very important as it taught him how business is done in the U.S. After college he moved back to Riyadh, and went into business for himself. He basically started with a small loan from his father and went from there. He got his start by brokering deals between foreigners looking to invest and build in Saudi Arabia. His political connections helped him here, but he did the business himself. He then led a couple of the first hostile takeovers of under performing banks, a practice that hadn't been seen in that area. He quickly made the businesses profitable by cutting expenses and cleaning up the banks loan portfolios.
He then started investing in international equities. He did the Citigroup deal, which was very successful. He is also a major shareholder in US companies such as Apple, Time Warner, News Corp, Pepsi, Hewlett Packard, Kodak, Proctor and Gamble, and Disney. He believes in strong, well know brands, and the value that they add to a company.

The prince also has major investments in high-end luxury hotels. He is major owner in The Four Seasons Hotels. He also has various hotel investments, including Fairmont, Movenpick, and IFA. He has been in the ownership group for New York's Plaza Hotel.

To me, the main takeaway from this book is the Prince's attitude and determination. He works extremely hard when approaching an investment. He believes in perfection and demands it with his staff. He often travels thousands of miles per day on his jet, and his travel schedule is perfectly planned. He often only sleeps a couple of hours per day, and is up well into the night as he needs to communicate with business partners in the West during their daytime hours. The Prince is a very serious man, and is very serious about his business, but does spend a lot of time with his children. He also gives a tremendous amount to charity. The book does touch a little on relations between the US and Middle East. The Prince offered to donate $10 million to the 9/11 fund, but it was denied by Mayor Giuliani after the Prince suggested the US adjust its policies regarding Israel and Palestine. This created some media backlash, and the book covers it from an interesting point of view that our media probably didn't.

Much like many stories of successful investors, this is a story of hard work, determination, and prudent investments. His preaches patience, and that you should never overpay for an investment. These are the same principles of Buffett and others, but the Prince has his own style, and his story is interesting and motivating.

I'd recommend the book to anyone interested in investing. It does cover things strictly from the Prince's point of view, as the author was allowed to join his entourage for a few months, so it could be seen as a little one-sided. But overall, it is very informative and interesting. The book does also include a DVD that has some interesting footage of the Princes yacht, planes, and where and how he does business.

You can buy the book here:

Friday Update

Bernanke fired up the bulls again with hints of another rate cut. But to me this only bodes well for trading up to the announcement. To me the key to the stock market climbing is restoring a calm tone with regard to the big banks. A rate cut may or may not help this. Stocks are clearly attractive right now, especially considering the unattractive rate of return of bonds and cash. But if there is continued shake up causing fear, most investors will get out of stocks based on fear.

Crude oil has dropped to $89, which has also helped. It appears that it will take a major occurrence to break $100 (geopolitical event, or issue with suppliers or refiners).

With those being said, I still wouldn't be surprised to see stocks sell off a little heading into the weekend. It has be a nice week of recovery for stocks, and with the continued uncertainty and rate cut euphoria wearing off, investors may take some profits.

I made some layout changes to the blog. Nice to look at something new.

Thursday, November 29, 2007

Another Bail Out



Among today's headlines is another bailout. This time its Etrade (ETFC). Citadel provided $2.55 billion, and got 20% of the company. Great deal for Citadel. They get CEO Mitch Caplan out and a seat on the board. This will give them a lot of leverage on the direction Etrade will take. The bottom line is that Etrade needs to focus on their brokerage business, an area where they have had a lot of success. Its been tough for shareholders, but things will come around. This is better for them then getting taken out by a competitor at too cheap of a price.

The decline is oil prices was halted due to a pipeline explosion in Minnesota. I think that the swift decline in crude really helped fuel the stock rally that we saw. The reasoning for the rally was the things I've been talking about the last week or two. Settling of the news headlines for financial stocks, crude oil dropping, and stocks being oversold. The potential for a rate cut made headlines, but a quarter point didn't do much for us last time. I think there is some major debate over rates at the December meeting, and I wouldn't count on the cut just yet.

I continue to believe there is room to the upside as the volatility subsides. If things get worse, the combination of a poor housing market along with a weaker consumer and higher inflation would spell a combination that would lead us substantially lower. We'll continue to look for clues on which direction we are headed.

Wednesday, November 28, 2007

Rally, Day 2

Investors have finally decided that stocks are oversold, and we've seen a strong rally the past two days. I'm still not convinced things have improved in the financial sector, specifically at Citigroup (C), but the stock price is pretty cheap. I believe they took the finance deal to prevent cutting their dividend, which would have been disastrous from a psychological standpoint. I think in the long run, they would have been better without taking this deal, but investors are following headlines, and this works for them.

Outside of that, the lowering of crude oil has to have helped some.

We've also got some Fed commentary, which always moves markets. Although yesterday, it was said that they don't want to cut rates because of inflationary pressures, today we heard that they need to be flexible. Its funny what the market chooses to listen to and what to ignore. I think it means that at least they are having a healthy debate and might not be as influenced by outside political forces as I thought they may be.

Just about everything is working today. We've stayed away from financials, and they are leading the way today. I'm not calling a bottom in banks though. I think there will be further shakeup over the next couple of quarters. But the correction did give the opportunity to buy at reasonable prices.

Have a great day!

Tuesday, November 27, 2007

Weakness Prevailing

We're continuing the trend of morning strength as investors hope for a rally, but it continues to wear out as the day goes on. I'm limiting exposure to the emerging market stuff right now as investors seem to be avoiding that right now. Aside from that, I'm still looking for bargains on stocks that I've followed for awhile.

The financials are really hurting right now. Citigroup (C) secured some financing in a move that seems to have some desperation to it. If you remember they were in the same situation in the early 1990's when another foreign investor, Prince Alwaleed, bailed them out. They are doing the right thing, and although it will take some time, they should get things straightened out. Book value for common shares is 25.48, and that could be a number to target if you're looking to get in for the long term.

Oil prices have scaled back the past couple of days, which is positive, although I'm not sure investors are paying much attention to them right now.

The market is grabbing a lot of headlines with negative news right now, and people are nervous. Thats why I can't give up on being bullish in the near term.

Monday, November 26, 2007

Little News Again

Strong retail sales on the big shopping holiday is a good sign. The bears are trying to downplay it saying that it was only due to the slashing of prices and it won't do much for profits. I think anything to restore some consumer confidence at this point is a positive. The consumer has been very rattled, as the media has come at them from all directions. Fuel prices, housing issues, weak dollar, etc. I think the resilience of the American consumer will surprise us again.

As I've said before, if we get little to no new bad news, especially from the financial names, I think stocks will rally.

We will need a rally in financials to move the major indexes, as they are so heavily weighted in Dow, S&P, etc. Aside from some one-day short covering, we haven't seen any sign that they will rally yet.

But overall, these slower news days are just what the market needs. An opportunity for the volatility to decease, which will bring back confidence for consumers and investors alike.

Friday, November 23, 2007

No News is Good News

I think that this will be the story for the rest of the year. If things calm down on the headline front, stocks will trade higher. There are still some attractive companies and prices are very attractive on many names. But, I've also mentioned the risks. The media is determined to use the fear of a bear market to promote their headlines. Its important that as investors we understand what the actual risks are, and there are some, and what is just hot air (a lot of that).

I believe in a "reversion to the mean" somewhat, and I think that it will happen to oil prices in the short term (3-6 months). This means we will see some drop in oil prices, and at least some stabilization. This will help stocks, at least from a psychological standpoint. And that is where the danger lies. We've traded so much lower because of fear. A lot of economic data is relatively solid. Inflation is what concerns me the most. I know that those numbers are manipulated somewhat. Any inflation index that doesn't included food and energy is worthless if you asked me. Just look around and see what things that you buy are costing you? Food specifically. The governments insistence upon promoting ethanol has hurt us here. The cost of all the raw food has gone way up hurting restaurants, grocers, and consumers. They don't like to use food and energy for these numbers, but they'll gladly use cars and other items that stay relatively cheap because of immense price competition? Doesn't add up if you asked me.

Anyway, this may be a little bit of a rant, but that is where I see things for now. I'm remaining cautiously optimistic.

Hope everyone has a nice weekend!

Wednesday, November 21, 2007

Holiday Trading

Typically, holiday weeks see light volume and benign trading action. Well that isn't the case this week. Yesterday was one of the most volatile days I've ever seen. The high oil prices are weighing things down right now. Emerging markets have continued their slide as well. Things will keep cycling on themselves (meaning our market goes down, which makes others go down and so on) until something shifts.

We've seen some hints of buying in the financial names. Etrade (ETFC) is up about 9% this morning, but it is hard to trust that it will hold. The bigger names, including Citigroup (C) have bounced up but then back down. It appears there are some buyers for these names, but most investors are still nervous about them. As I've said before, we've already seen most of the bad news from banks in the short term. This is why I've been thinking we're due for a year end rally. But there are plenty of things that could derail that plan, so it is important to stay flexible.

Happy Thanksgiving!

Tuesday, November 20, 2007

What I'm Looking At

There are some deals out there, and here's what I'm looking at:

Lowe's (LOW) has really taken a beating. I think this stock isn't far from its bottom, but there is no hurry to get into it. When the recovery begins for homebuilders, which appears to be at least a couple quarters away, this will be one of the first stocks to take off. It is a great company overall, but right now business is tough. If the market really sells off and it gets taken down too far then I may buy it, but for now just keeping an eye on it.

Echostar (DISH). Dish Network. They've been in the news a lot lately amid rumors of a buyout by AT&T (T). I own both these stocks for the blog portfolio. Dish reported some poor numbers a week ago, and the stock dropped hard. It rallied again yesterday when the buyout rumor resurfaced, and is trading lower today. I may pick up some shares personally just on speculation of the buyout. I typically don't get into this type of activity, but I do like the fundamentals of the company, and the valuation is decent. If I pick some up, it would be a very small amount, not near a core holding position size.

SAP Software (SAP). This is a company I've researched a lot, and have spoken about here before. I like their core businesses and the fact that they aren't focused on just one region, but are very global. There is a lot of demand for their product. I've been trying to enter the stock at or under 50/share, but no luck yet.

Financials are still brutal, and will be until they can reassure investors. Lots of deals to be had here, but I'm not touching anything yet. Citi (C) is getting really cheap, but how low will it go? They need to find a CEO, pronto. Etrade (ETFC) is getting hammered again. They've really exposed themselves to a lot of punishment from the street, and they don't have much to fight back with. They have a good brokerage business, but were too small to get into the level of mortgage exposure that they did. I bet that they get bought out in some form. Can't touch the stock.

Best performer for me has been my Ultrashort Dow Fund (DXD). No surprise there. Its one I'm happy to have held onto, and if things deteriorate more, I'd look to pick up some more shares. I'm still trying to be in the contrarian camp right now, as too many people are too bearish considering what the facts are. But as investors we have to stay flexible. One of my favorite quotes is by economist John Maynard Keynes. "The market can stay rational longer than you can stay solvent."

Don't Fall in Line

There is no news to trade on today. Just the battle of bearish, recession-coming sentiment vs. stocks are oversold sentiment. Some helpful retail numbers and tech earnings boosted the market early, and it has since faltered. Investors are going to focus on the past negative news until something changes. Although Wall Street trades on future events, everything is too uncertain right now, and people would rather just get out for now it seems.

The media is pushing negative commentary because it grabs headlines. They don't care what effect it may have on the market. It has little effect overall, but can scare out the individual investor. Listening to these people change their stance every day is not only a waste of time, it actually detracts from being a successful investor.

Monday, November 19, 2007

More Selling

The financial media has basically proclaimed that we are headed for a recession. Although it is easy to side with this argument with the way current trading action is heading, I'm still not sold on it. The market is continuing to price in risk of future events, just like it should. Based on the evidence we've been given, stocks will respond accordingly. But looking at today, not much has changed. Citigroup (C) was downgraded, and that is probably the biggest news of the day. But all the headlines are re-treads. Yes, the housing market has been poor. This has spilled over into the mortgage and credit markets. From a valuation standpoint stocks are still mostly attractive. To me, sentiment has to be over the top positive for me to think we're headed for a decline. We're in the opposite situation right now. As hard as it is to think this way, it is the only way to be a successful investor. I can guarantee you that Buffett and other successful investors are excited at the opportunity of finding buying opportunities which just aren't available when stocks are at levels like they were a few weeks ago.

Don't get me wrong, I'm not issuing an "all-clear" or "buy now" proclamation, but rather a "don't panic." Don't get shaken out yet. There's still a lot to be seen before we can announce a bear market. If oil prices subside, the Fed will cut rates again before the end of the year. If things stabilize with the banks, it will also allow the stocks with positive outlooks to climb again.

Thats it for now, and I'll keep updating with anything of note.

Friday, November 16, 2007

International Markets-The Case for China and Brazil

Yesterday I discussed the situation in Japan, and how their situation has helped other markets. Now lets take a look at a couple of others. China's markets have seen a healthy, gradual pullback in the past week or two. Everyone expected to see it collapse on itself, and so far, it is acting rationally. The Chinese government is doing its best to cool growth, and it seems to be doing well so far. This bodes well for the bullish case to stay in place as it will keep investors confident that the market won't collapse. From a valuation standpoint, I found something very interesting. The BRIC markets (Brazil, Russia, India, China) are valued at 25% of their GDP, while industrialized nations are trading at 81% of their GDP. This article displays the stats.

I also am bullish on Brazil. They are a quickly growing, resource rich nation. Their market has experienced growth through its banks and commodities. The have taken a little bit of a back seat to China's amazing growth story, and this is a good reason to take a look at it. They don't have the resource of population like China, but they are still a good place to invest. China still is so heavily government controlled and a strange move could pull the rug out from their markets. I don't see the potential for that type of situation in Brazil.

My favorite ways to invest here are in the ETF's. BRIC ETF (EEB). Brazil ETF (EWZ).

I found the article through The Kirk Report's website which is a great resource. www.kirkreport.com

Disclosure: Author owns EEB.

Thursday, November 15, 2007

The Case for Japan

As I've mentioned before, I read a lot of investment guru Ken Fisher's writings. His portfolio strategy column in Forbes is a monthly must read. This month he discusses how Japan's currency and interest rates are helping the global equity bull market. He also discusses why it may be prudent to take a stake in Japanese stocks in case this trend changes. I'll follow his advice and add some exposure to the portfolio. Like I've done before, I'm doing it in a country-tracking ETF. Japan's is symbol (EWJ). As a side note, I've been bullish and continue to be on Brazil as well (EWZ).

Please take the time to read Ken Fisher's column here.

Wednesday, November 14, 2007

Not in the Clear Yet

Yesterday's rally showed me that financials were oversold. That pretty much sums it up. That, and maybe retail will have a better Christmas season than expected. I'm continuing in my belief of a year end rally, although we're not through with the volatility. As I've said before, oil prices will come down some, and they have. The long term trend is up, and I think we'll settle somewhere above $80/barrel and under $95/barrel for the time being.

Prior to yesterday's rally, the bears were out in full force. I've heard not just recession talk, but "the coming recession," and what to do. People love the gloom and doom headlines, because it makes them feel that Wall Street is finally getting a dose of what we're seeing on Main Street. But there always has and will be a disconnect.

How good has Goldman Sachs (GS) looked compared to its peers? It seems almost too good. They are experiencing no major write-downs, while they profited by shorting mortgage holdings in the past quarter. I guess thats why they are the best.

We'll keep on our toes here. I'm looking for weakness as a buying opportunity in a couple of sectors: technology and international stocks.

Monday, November 12, 2007

More News to Digest

The big banks appear to be snapping back into the green again. Citigroup (C) and Bank of America (BAC) should lead the charge if this happens. I still like our chances for a year end rally as wall street wants to finish the year off on a high note. It has been a volatile year for stocks, but profitable for the most part. Etrade (ETFC) is continuing its spiral as more analyst downgrades have come out, and some have the talk of bankruptcy. I think thats a little extreme, but the stock is responding, down 40% this morning. If I was someone a little more plugged into the situation, I'd say it would be worth buying just for the brokerage business, but there are too many unknowns.

Friday, November 9, 2007

Let's Be Aware


Sentiment is getting off the deep end on the negative side. Considering the level of volatility taking place, its hard to blame anyone thinking that way. But we have to think differently to get an edge. While there are more credit risks, almost all major banks have reported their level of exposure so far. There could be further damage to come, but there also may not. One thing to consider is the possibility of short covering on the financial names. If this happens, the market will pop up fast, because the financials make up such large weightings in each major index.

Tech has also been selling off pretty hard. I think this is mostly people protecting their profits. Some tech names that have performed well are consumer driven, and with jitters in the economy and consumer sentiment, I can see where the worries are coming from. I still believe the consumer is resilient, and the Christmas season will still be pretty strong. There is a breaking point on gas prices, and how they could negatively affect the consumer, but we haven't reached that point.

Remember the words of Warren Buffett: "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."

So where are we at with today's market?

Have a great weekend!

Thursday, November 8, 2007

Sentiment and Emotion Trading

It was a pretty strong sell off in the afternoon yesterday. But lets take a look at what we've got. We know these big banks were having problems, and it shouldn't come as a surprise that they are writing down a lot of bad debt. Its better that they announce them together, so the market can understand how to re-price them, based on risk.

The problem with the policy of the Fed is that every time we get a sell of like this, everyone looks straight to Bernanke. I mean, what do you expect him to do? The Fed has created this feeling of a cushion for investors that if anything goes wrong, we'll bail you out, no matter what the long term costs are. Bernanke is giving a speech today, and I can guarantee there is a handful of headlines saying, the market will wait to see what he says. We've heard from him, and things haven't changed that much.

Emotion created most of what happened yesterday. Greed and Fear. I'm not saying the market can't drop further, but I'm looking for opportunities to buy good stocks and funds. The overall sentiment in the media is way too negative. If they keep predicting a recession, its going to be a lot harder for one to happen. So in this case, we have to learn to think like most of them aren't. Look at fundamentals. There has been some fairly positive economic data that has come out that has been completely ignored. If the news from the banks settle down a bit, I don't see any reason stock can't rally into the end of the year.

Wednesday, November 7, 2007

Assessing the Tape

Volatility continues to be a key theme. Media sentiment continues to be on the bearish side, which helps further a case to be bullish. A lot of the negative news is priced into stocks already. By now, almost everyone is expecting poor results from the big banks. So if we get no news, or just slightly better news, things will improve. Economic numbers continue to come in steady, so there isn't any reason to jump ship on the overall economy. But nonetheless, the volatility is shaking a lot of people out of the market.

I think oil prices are going to come down. The overall trend is for them to continue a climb, but when the frenzy wears out, I think we'll be heading a little lower there.

With new economies growing and becoming more competitive, I'm always trying to look ahead for the next frontier of investing. This is easiest by looking at commodities. One that has intrigued me lately is water. I know it has seemed to be a little bit of a "hype" play, but there is a pretty good case in the next few years. Although accessible water isn't a problem for many people in the U.S., it is in certain parts of the world. And it isn't just drinking water, it is infrastructure companies that put pipes in for farms and companies. A lot of water systems are becoming privatized as well. I wouldn't but a specific company to profit from this, but an ETF is a great way to get some exposure. I've studied the few that are out there, and my favorite is Claymore's Global Water Fund (CGW). The have exposure to various water and infrastructure companies in the U.S. and throughout the world. I like this as a long term play.

Beyond that, I'm still looking for more buying opportunities.

Monday, November 5, 2007

Use Pullbacks as Buying Opportunity

The worst of the news is getting priced into the market right now. There are issues over at Citigroup (C), and CEO Chuck Prince has stepped down. The street has been clamoring for his departure for some time, and this should please them. There are too many uncertainties in the credit markets to be buying the bank stocks yet, but there will be some deals to be had soon.

But the worries coming from the banks are giving us opportunities to buy companies that are doing well at cheaper prices. United Technologies (UTX), for example, is one that I'm looking at.

We'll see what the week brings.

Friday, November 2, 2007

There for the Taking

The market is continuing to give us buying opportunities today. The reason for this downturn is again the financial stocks. Although they are starting to look like bargains, I wouldn't step in and buy banks just yet. But elsewhere, there are some opportunities. International companies involved in growing industries is where I'm looking. SAP software (SAP), which I mentioned last week, is one I like. Manitowoc (MTW), which I purchased on weakness yesterday, is another. Also, I'm keeping an eye on the ETF's in Emerging markets or the BRIC (Brazil, Russia, India, China) region.

I'm updating the portfolio today so you can keep up with the moves I've made.

Thursday, November 1, 2007

Look For Opportunities

After the Fed commentary yesterday, the market is now afraid that they may not have the cushion of rate cuts to fall back on. I don't think we need them at this juncture. We know the big banks have had troubles, and we should let it play out. Look at how Goldman Sachs(GS), which has further shown why they are the best, performed while all its peers faltered.

So stick to the same game plan. In some portfolio news, Manitowoc (MTW) reported today, and the conference call is happening right now. They are continuing to emphasize the strength of the global expansion, and they are making lots of moves to profit from it. The stock has traded down 10%, as the street was looking for perfection. I used the drop to add some more shares.

I'll keep an eye out for more buying opportunities as they arise.

Disclosure: Author personally owns Manitowoc (MTW).

Wednesday, October 31, 2007

Fed Cuts Again

The street got the quarter-point cut it was looking for. This should keep things on the path for now. Bernanke has backed up his promise to do whats necessary, which to me means cut rates anytime to prevents stocks from falling. Lots of trading volume following the announcement, but no major move one way or another, as this move surprised no one.

To me this just reaffirms what we've been talking about. Things look solid as we look ahead. Commodity stocks, tech stocks, and anything with good international exposure should continue to outperform financials and heavily US based stocks. This has been the formula and will continue to be, as I see it.

Monday, October 29, 2007

All Eyes on the Fed...Again

The market is trading cautiously higher awaiting the anticipated rate cut. I've talked at length rates in the past, and they continue to be the central focus today.

I read a nice report about SAP (SAP) software. Software companies are benefiting from the creating and updating of software systems, particularly in large companies. I was intrigued by the idea of SAP putting together the software for electric and fuel cell vehicles, which will be a big thing. The biggest barrier to alternative fuels for cars is setting up the infrastructure to re-fuel them, and SAP will benefit greatly from this. I'm adding SAP to the portfolio here.

To read the article about SAP, click here.

Friday, October 26, 2007

The Way I See It

This week the trading swings have been crazy. It is mostly due to mixed earnings. Finanical names have give reason for a sell off, while tech names have come in strong. Microsoft (MSFT) earnings are leading the way today. This provides some optimism for the future, as there are some high quality tech names that are consistently growing earnings. Microsoft has become a good value play at this point, as the stock has been relatively flat the past few years while earnings have increased.

We are experiencing record commodity prices. This to me is going to be a driver for inflation. I know that inflation statistics have come in at a reasonable level, but I believe that they can and do manipulate those numbers. I mean, what good is an index that doesn't include food and energy prices? Those are the two things consumers spend most on. The bottom line is that the stock market isn't necessarily trading relative to the state of the economy in the US. There is too much international influence in US corporations, which is allowing them to continue to earn. There is nothing wrong with this, and it is positive that corporations have adapted in a changing economy.

But it now means that we will have to start disconnecting the state of our economy with the state of the stock market, as crazy as that sounds. This is the mistake that I think most of the financial media is making. They are talking about the poor housing market, and trying to relate that to a coming recession. While this could happen, it also might not. The ability of US companies to create earnings through other means than US growth is the reason why the stock market has performed well. They are increasing their earnings through 3 key ways:

1) Borrowing money at a cheap rate to buy back their own stock;
2)Borrowing money at a cheap rate to buy out or merge with a competitor; and
3)Increasing their exposure to growing international markets.

This has all taken place because of low interest rates. This is why if the economy needs more help, which it appears to, then the Fed will cut rates, which I see happening again.

Monday, October 22, 2007

Market Moving

Friday's sell off has carried over, as expected. Things are not looking very good right now for the US economy. This doesn't necessarily mean stocks will perform poorly. The question is will the US economy pull us into a recession and a worldwide market decline, or will the strength in worldwide markets hold up stocks? That question remains to be seen.

The Schlumberger (SLB) call made me more bearish than I've been in a while. The oil service sector is one that has been performing well, as is expected to perform well. Schlumberger said things could get worse in the next couple of quarters. The stock, of course, dropped 10%. Wall street always looks for perfection from the so-called "leaders" of the market. This will also be the case when Apple(AAPL) reports later today. If there is the slightest hiccup, the stock will drop. Both companies are outstanding, and are excellent long-term stocks even though neither is attractive for a buy right now.

I'm still in wait-and-see mode because of a few things... I think the Fed will cut again at the end of the month, and this could prop stocks up again until the end of the year. I'm not sure how much longer they can avoid a larger decline though.

I think some emerging markets will pull back a little, but will also rally into the end of the year.

Like I said, it's wait and see mode. If you're not comfortable, theres no problem being in cash, or even adding a small short position.

Thursday, October 18, 2007

And So it Goes...

Weakness in Financials. Strength in oils and miners. Sounds like a broken record. And it will continue. Oil may pull back some in the next couple of weeks, but the overall trend will continue. I think people are too bearish right now. Many international economies are booming. China has continued the impossible. While it may be good to let things cool off a bit there, I'm recommending a couple of other areas. India and Brazil. Both are experience a vast amount of growth, and aren't seeing the same inflows of cash that China has, at least not yet. India's market suffered a blip because of some regulatory issues, but still looks strong. Brazil is also doing well.

I'll add ishares ETF index funds for both. Symbols INP and EWZ.

Tuesday, October 16, 2007

Fed Talk

The rhetoric coming out from Bernanke says to me that more rate cuts are coming. Earnings are coming in ok for now, but the next couple of days will tell us more. He isn't talking about inflation as a key issue, like he was prior to last months cut. The inflation talk is what had everyone worried that he wouldn't cut. Now all the talk is weakness in credit and housing markets, and that key line "The Fed will act as needed." Same thing he said right after he cut in September.

The media keeps reminding us of the 20 year crash anniversary, and the "Can it Happen Again?" headlines, which guarantee some interested viewers. Keep in mind, they are trying to get ratings, just like any other news outfit.

I think we're in ok shape right now. Earnings will be a big factor right now. We could move lower if we see some weaker outlooks ahead. But I think we'll see another rate cut at the end of the month which will boost stocks again.

So, take it for what its worth. Stay tuned.

Monday, October 15, 2007

Thoughts on the Portfolio

Fairly strong sell-off today. The market seems a little jittery with bank earnings coming out. China National Offshore Oil (CEO) continues its torrid pace, as does China's overall market. It has more than doubled since I put it in the portfolio in May. Can China keep up its pace? I think it can, at least in the short term. They are growing rapidly, with an economy developing into a situation with more competition, less regulation, and a huge investing base of middle to upper class. They seem insistent on showing the world how much of a force they are next year in the Olympic games. I think their market is headed into stages of a bubble, but should be able to hold out until then.

Another portfolio holding that is quietly doing well is T. Rowe Price (TROW). I've always been impressed with their product, which is high quality, lower cost funds. They have a great history of returning cash to shareholders, and increasing earnings. They have introduced target retirement funds, which automatically change risk levels based on how close you are to retirement. Although as an investor, I'd rather choose my own means of diversification, these funds are a great choice for passive investors who don't have a lot of market knowledge. If we see weakness in the market over the next few months, this is one name worth buying.

Friday, October 12, 2007

Tech on Fire

Technology stocks have been on fire in the past couple of weeks. If you don't believe me, take a look at the charts for Google(GOOG), Apple(AAPL), and Baidu(BIDU). I'm not too interested in buying any of these names though. Take a look at yesterday, when Baidu got a negative analyst note. We saw the entire market turn upside down in a matter of minutes. It seems these stocks are just waiting for someone to say sell, but if it doesn't happen, they will move higher. No question about it.

So in the mean time, I think investors should be cautiously bullish. Stay on the long side until the market tells us not to. And be aware that this can come at any moment.

Wednesday, October 10, 2007

Charging Ahead

We again saw strong trading yesterday on the release of the Fed minutes, and also because of anticipation of positive earnings. This morning we saw a little halt in that pattern as some earnings came in a little light. Chevron(CVX) and Valero(VLO) issued profit warnings, citing decreased refining margins. This is of some concern to investors, but shouldn't come as much of a surprise. Oil companies have been reporting issues with refining most of this year. Most refineries in this country are falling apart and can't keep up with demand. This is why gasoline prices were high earlier this year when crude oil prices were still lower. It is also why I closed out positions in the two refining companies that I had this summer.

I read a positive report on property and casualty insurance company, written by Bloomberg, and reported through The Kirk Report. It says when there are credit issues these companies get beaten up, even when their exposure isn't much. Add that to a quiet hurricane season, and I think there should be some undervalued companies. I'm going to go ahead and add Travelers (TRV) to the portfolio here. I like where they're at valuation wise, and profits should come in ok.

You can read the Bloomberg article here.

Friday, October 5, 2007

Market Strength Continued

The market continues to perform well. Each potential event keeps getting shaken off (today: jobs report). I don't see any reason why this shouldn't continue in the short term. We may see a slight pullback in oil prices, but nothing to be concerned about as investors. The only thing still lagging a little is financials and home builders. I see value in some of the financial names right now. It's kind of funny how its playing out. The big banks wait until the market is having a good day, and then they announce that quarterly earnings will be down xx percent. This way, nothing is disrupted, and the market can shrug it off as a past concern, and not a future one. This also allows them to bolster their stock prices because when they announce earnings, they will beat expectations, which will have been lowered because of the guidance they've been giving us.

And of course Bush speaks about the economy only on days with good economic data being reported.

FYI: The portfolio of stocks that I've recommended is up 7.07% YTD. The biggest gainers have been international names, which is no surprise. The biggest laggards are the short ETF's I've recommended as hedges.

Things are looking pretty good heading into next week. I'm not excited about buying just anything, because stocks aren't that cheap. But there are opportunities being handed to us all the time, and I'll do my best to point them out.

Have a great weekend!

Monday, October 1, 2007

Fears Relieved?

Well, it didn't take long to get to 14k, and close well above it. Investors now are more confident in the stock market. A lot of it had to do with Citi (C). Even though they said profits will be down this quarter, investors gained confidence in their opinion of future earnings. And as I've said many times on this blog, Wall Street reacts on the future impact of today's events.

Here's an interesting thing: The media has convinced almost every person in America outside of Wall Street that we're headed for a recession. Stories of mortgage brokers losing their jobs and Realtors waiting tables, etc. These sort of stories do affect people's confidence.

Don't get me wrong, I still have concerns about this market. I think that is has been manipulated somewhat, especially on US side of things. I think there is a lot of growth in the world right now, and because of the globalization of markets, we are affected by their growth, and affected positively.

I think the rate cuts are a political move, to be honest. Markets have to price in risk factors, and the credit issue we've faced should factor in. The Fed cutting rates boosted the market, and they appear committed to doing everything in their power to continuing that stance. But, if things truly end up not so good, there won't have been that chance for the market to price in the risk of future events, and things could come down pretty hard.

Dow 14k Part II?

It appears that the market is gearing up to hit Dow 14,000 part II. It didn't last long when it reached the milestone in July, losing over 1,000 points in the following month. This time, the market has a safety net of Fed rate cuts behind it. But like before, we will see bumps that will try to disrupt things again. Today, that bump is a major profit warning by financial behemoth Citigroup (C). They warned profits could be off 60% because of mortgage and credit issues. I think CEO Chuck Prince will be leaving soon, which will make investors happy, as the stock hasn't done much in the past couple of years.

It is becoming a little difficult to pick individual stocks right now. Valuations aren't totally favorable, as we are near all time highs for the large stocks. There are some opportunities in financial names that have been weaker in the past couple of months. But we have to sort through those too, as some are still to risky.

Friday, September 28, 2007

Consumer Recession but Corporate Boom?

Stocks appear to be taking a breather today. One thing to consider is the sentiment right now. We are near all-time highs for the Dow, and there is a lot more negative commentary out there right now than in July when we were at this point. According to Ken Fisher, this should be taken as a sign to be bullish. But then you have Greenspan talking again, saying recession odds are somewhat higher, but less than 50-50. He obviously has the power to move markets, and I think the market will respond today.

On one hand, you have the idea that as data gets weaker, the more likely we are to see more rate cuts, and this has held stocks up during the past week. But in 2000, the declines continued as the Fed cut rates lower, and lower. So there is a so-called "tipping point" where rate cuts can't save the market. Are we getting to that point? I don't think so. But like Greenspan said, the odds are growing.

Everyone is looking for clues that the housing problems will spill over and hurt overall consumer health. But consumers have been strapped for some time. The cost of everyday items is way up, and the main source of investment and capital gains for the average American, their house, is starting to decline in value. A strong housing market is what has kept the consumer in good shape during the past 5-7 years.

But these issues won't necessarily affect the stock market. The stock market has performed well not because of the the health of the average consumer. It is because money has been cheap and companies are experiencing growth from the global boom. Our economy is much more a global economy than ever before. So there actually is the potential for the US consumer to be in a "recession", while US companies are fairly healthy.

As investors, we have to keep this in mind.

Thursday, September 27, 2007

A Pretty Good Position

The market is in a pretty good spot right now. The Fed has proved that they are ready to step in right away if needed. So anytime we get negative economic data, which seems to happen about every other day, stocks respond well because people expect another rate cut. When we get positive news, like GM (GM) yesterday, the market rallies strongly. The only scenario I see for stocks going down in the short term would be what I would call a "shock value headline." For example, if a major bank was in big trouble, or a terrorist attack occurred. Something of an unpredictable nature that would make investors respond with fear. In any event, this is pretty unlikely. Because of the cushion of a rate cut if things go bad, investors are becoming more and more confident.

Nice to see Chevron (CVX) announcing the big share buyback. 15bil seems like an awful lot though. Seems there could be some other ways to spend some of that cash. But it is positive for this company that I've been bullish on ever since I started this blog.

Thursday, September 20, 2007

Opportunities in this Market

Goldman Sachs (GS) again shows why it is the elite investment bank/brokerage. While its competitors are missing earnings and complaining about losses in mortgage securities, Goldman executed a great hedging program and profited from it. Or at least that is the way they spun it. Either way, earnings were great and they appear to be run better than its competitors. The market volatility has to help their commission business too.

FedEx(FDX) reported today. One of the companies that supposedly represents the economy as a whole reported some unsettling news that future profits may be weaker. So does that mean the entire industry is bad? Maybe not. Hello UPS (UPS). They are experiencing a lot of growth overseas, where they have a big advantage over FedEx. They also benefit from a resurgent Amazon(AMZN) heading into a big retail season.

Guy Adami over at Minyanville.com wrote a great article, and had a nice piece on Fast Money last night detailing the whole story.

I'm going to go with this theory and add UPS and Goldman to the portfolio.

Tuesday, September 18, 2007

The Fed's Big Move


Well, we got our answer. A .50% cut in key interest rates. The market has responded accordingly and traded much higher. But what is going to happen next? I thought it was interesting how inflation numbers, which are so easily manipulated, came in lower than expected this morning, which gave the Fed support for this cut. They clearly are taking a "shoot first, ask questions later" approach to this market. It could be purely economics, but who could believe that? There are political dynamics going on, as well as other interests.

The Fed, with all of its control, has become an instrument for people in charge to help control the market. Which is fine for investors, as long as we can quantify what their actions mean. This is the hard part. Its easy to know what will happen today, but how about the next couple of months? Does the surprising hefty cut mean things are worse than we thought? Or does it just mean that everyone was expecting a .25% cut and that would have left room for disappointment.

My viewpoint is that the global economy is strong, and the Fed feels that the US needs to keep up. The funny thing is that the other countries actually have real, organic growth and are RAISING rates to keep things under control. We have kept rates low so we can create our own earnings growth through stock buybacks and mergers and acquisitions. So we have to CUT rates in order to keep our market going up.

Something to think about as we move forward.


The image is used courtesy of Minyanville.com

Monday, September 17, 2007

Big Day Tomorrow

Tomorrow is a big day for the market. The Fed will announce its decision on interest rates. This is probably the most uncertainty I've seen in the markets. As I've discussed before, investors are counting on a rate cut. How much will remain to be seen. If there is no cut, which is a possibility because of inflationary pressures, stocks will retreat. Beyond that, there are lots of possibilities for how trading will go after rates are announced.

We also have the big brokerages reporting earnings this week. These aren't the most forward looking results, but it will be important to see how much they have been affected by the markets volatility, lack of M&A activity, and liquidity mess.

No one will be getting bored with the market this week!

Friday, September 14, 2007

Some Thoughts on the Fed

Next week, the Fed will make its decision on what to do with interest rates. This is the major driving force in the markets right now. The market has virtually already priced in a rate cut, and it would be a shock if no change is made. But I'd like to look at the debate on how much to cut, and what it means. The question is whether to cut a quarter point or a half. The market typically reacts positively any time rates are cut because anytime access to money is cheaper, it helps the economy. But if the Fed cuts a half point, this is basically saying that the economy is worse than most people think, and might make investors worried. If the Fed cuts a quarter point, some investors may think that we were expecting that, and it isn't enough.

Personally, I think the best move is to cut a quarter point, and the rest is up to Bernanke and the message that he delivers. Its up to him to remind investors that the Fed will step in in the future if needed, but isn't here to bail out lenders that made poor loans, or investors that made poor speculative decisions.

The market has been performing decently in the past few days, but Bernanke shouldn't use it as a reason to leave rates unchanged. The market prices in future events, and it is acting pretty well in anticipation of the rate cut. So Bernanke needs to walk a fine line next week.

Wednesday, September 12, 2007

Another Quiet Morning

Another day with relatively little news coming out. This seems strange considering what we've been getting over the past month. I see stocks trading flat to relatively higher until next weeks Fed announcement. The entire market is hinging on that decision, and it is the only thing that is really newsworthy right now.

Oil is trading awfully high, which could bring back the debate of: at what point do oil prices really start negatively affecting this economy? It has been talked about before, and even with oil prices climbing, most companies have been able to absorb the added costs. Although most probably are passing the costs on to the consumer. I think $100/barrel is probably the magic number where things could get difficult.

Tuesday, September 11, 2007

What Today Means

Today marks the six year anniversary of 9/11, and its difficult for investors to not have it in the back of their minds. I've read about "Bin Laden Trades" over the past couple of weeks, in which people have made bets, particularly in S&P options, in case of an attack. So I think there is some early relief that there is no major news. Beyond that, investors are focused on Bernanke and what he will do with rates.

No one is very sure how good or bad things really are, so they are basing investment decisions on something measurable, and that will be interest rates.

I updated the portfolio and results, so take a look.

Monday, September 10, 2007

Counting on the Rate Cut

In the wake of last week's poor jobs report, investors have panicked a little. But the real panic will come if the Fed doesn't cut interest rates at its upcoming meeting. Stocks are being held up on the very likely idea that rates will be cut. This also depends on how much rates are cut as well.

We all know why this is happening. It has been covered for weeks. Now it seems that its a waiting game to see:

1)What the Fed does with rates
2)If things get worse (for example, a lender or homebuilder goes bankrupt) or
3)If the situation blows over.

If we get more "headline grabbing" stories, then we will be headed lower. Stocks can go down if things are actually bad, or if they appear bad. If things stay quiet, stocks will creep back up like a few weeks ago.

Overall though, the see-saw battle should continue. Obviously M&A activity has quieted tremendously as credit has been drying up, or at least appearing to be. Many stocks are relatively undervalued, and funds have been buying on the idea of this being just a small correction.

Tuesday, August 28, 2007

Volatility is Back

It didn't take long to get a rush of volatility back into the market. Today's action was triggered by expected low consumer confidence numbers, and accelerated by the Fed proclaiming that they were hoping the market would straighten itself out, thus limiting the odds of further rate cuts.

It is really interesting to me how many people in this business (mainstream media/market commentary) change their stances on a daily basis. We all know that markets experience ups and downs, but so many people forget it. I mean a month ago people were positive that this year would be outstanding for equities. Then two weeks ago, it was as if the whole global economy was about to collapse. Then we get a rate cut, and some hedge funds buy bank stocks that have been oversold, and all of a sudden we are in full bull market mode again. If you're an average investor trying to trade some stocks and funds, there is no way you can profit from listening to these people. By the time you figure out what they are saying, things are already moving, and you get stuck buying in too high. Then the market turns, and they're screaming sell.

I've spent a lot of my time lately researching alternative methods for investing and stock picking. I recently read Ken Fisher's book, The Only Three Questions That Count. I have been intrigued by what I read, and I think his theories make sense for someone desiring a change in tone. He debunks a lot of theories that are widely accepted on Wall Street. His thoughts on P/E ratios, budget and trade deficits, and gold are all interesting. I'm also intrigued by his explanation of how companies have used cheap debt to their advantage, and thus created the latest bull market. The biggest thing I've taken away from it is that you have to think for yourself, and not believe everything you hear because it usually is either a) false, or b) already priced into the market. In either case, you lose.

Anyway, its something to consider when reading the usual commentary. The volatility appears that it will continue, and if you're not in a comfortable situation with your investments, cash is not a bad place to be, I don't care what the article of the day says.

Friday, August 24, 2007

Adding Some Positions

The market is continuing its pattern of a steady move upward. I'm trying to think like others aren't and add some positions that have been out of favor, add beef up some others.

First off, I'm adding Novartis (NVS). They are a Swiss drug maker that in my opinion is undervalued. This is an industry that continues steady growth, and they have a nice pipeline.

Secondly, I'm adding a small company called Mac-Gray Corp (TUC). Their business is laundry equipment. They provide service to apartment complexes and college dorms. They use a card-operated business that users can control online. I see short term strength here with more people renting housing with the real estate market soft. I also see long term strength with colleges expanding rapidly.

Lastly, I'm adding News Corp. (NWS-A). This is the well-known media conglomerate controlled by Rupert Murdoch. They control a variety of media sources including Fox News, The New York Post, and Myspace. They recently acquired Dow Jones, which has The Wall Street Journal, Barrons, and a few other names. While I believe Murdoch may have overpaid for Dow Jones, I view it as a very important acquisition for News Corp. They are launching Fox Business Channel this fall, and Dow Jones companies' will complement the new channel well. I see long term strong growth ahead for News Corp.


These are positions that I currently hold that I'm adding:

Best Buy (BBY)
Capital One Finance (COF)
Echostar Comm. (DISH)
U.S. Bank (USB)

Wednesday, August 22, 2007

Time to Update

The market has continued to churn upwards on the heels of last Friday's rate cut by the Fed. We saw that many of the big financial institutions used the opportunity to add cash. The market seems to be anticipating more cuts. I'm wondering what event cause the Fed to shift their focus? I mean clearly they are looking to protect against a "credit crisis", but just a week ago, their primary focus was on inflation. We've had a few news pieces that could have driven this, whether it be Countrywide, Capital One, or BNP Paribas. I personally think Bernanke was taking heat from some of the heads of major banks and brokerage houses that were seeing their clients start to panic.

The housing and mortgage issues aren't going away, or so it seems. Many of the resets on the ARM's don't kick in for another 3 to 6 months. But by this time, the news will be already priced into stocks, as Wall Street is always looking forward. I think there will still be some nice opportunities in stocks for the rest of the year. The third year of a presidential term typically is a good one for stocks. The industries that have led the charge (oil, miners, many blue chips) were the first to drop hard when the market corrected during the past two weeks. They also appear to be the first to lead us back up.

We will see more uneasiness in trading, as I don't see an end to the panic type news headlines coming out of the financial sector. But they shouldn't be enough to drive us into a recession, at least not yet. If it gets worse, that could become the case. For now, I think investors should take some prudent risks, but limit their overall exposure to this market. I've advocated using short ETF's to limit exposure, and they have worked well for me. I don't see now as a time to abandon your favorite stocks or funds. Although you may want to cut back a little, especially if you've been in sectors that have experienced volatility, and if they are causing you to much stress.

Thursday, August 16, 2007

Thursday

It now appears that the all-important rate cute that the bulls have been clamoring for will not come. This doesn't bode well for the market right now. It seems every day we are seeing another credit or mortgage related issue. Today it is Countrywide (CFC). I think the real thing driving the markets is hedge funds being forced to sell their shares to come up with cash for redemptions. In this uncertain market, I'm sure a lot of hedge fund investors want their cash.

I'd say most likely, within the next week, we could see a short term reversal. This is because certain sectors that have strength have gotten a little oversold. But beyond that, I still think we're headed for lots of volatility, with the potential to trade even further down.

I'm still in a pretty defensive stance. I've added lots of short ETF's to the portfolio. A couple of the portfolio holdings got a bump yesterday when Warren Buffett disclosed owning them. Bank of America (BAC), US Bank (USB), and Wellpoint (WLP) are the names involved.

As a side note, if you've got the guts, there are some major discounts out there. Countrywide (CFC), is a quality mortgage company trading way down. Etrade (ETFC) has also been taken down hard due to its sub-prime exposure. I don't recommend jumping into these names, but they are definitely trading at attractive valuations.

I'll try to update the portfolio later today.

Friday, August 10, 2007

Adding More to the Short Side

I'm adding some to my positions in ETF's that short markets. That includes symbols, DOG, DXD, SDS, and QID. Also, I'm adding SKF, the ETF that shorts financials. It should provide some short term help for the portfolio.

If we see some stabilization, I've got a few names to add on the long side. But for now, we'll wait and see on those.

Thursday, August 9, 2007

Amazing Times

The activity in the market has really become quite a spectacle. The volatility is tremendous, and its amazing in the fact that we're one event from the whole thing falling apart, and at the same time, we could see the market shrug a lot of this off and move higher.

The news of the hedge funds being in trouble makes me bearish the most. They control a lot of money, and most of it is moving rapidly. I hope they are aware the role they play in keeping our market afloat.

I think from a fundamental side, there are reasons to be optimistic, but the credit and mortgage problems could be too much for the rest of the market to overcome. Big brokerages like Bear Sterns (BSC) and Goldman Sachs (GS) are so instrumental, and if they run into problems, the market could fall apart on fear alone.

We'll see what happens. I'm moving very slowly, if at all. But it is important to watch whats happening.

Tuesday, August 7, 2007

Some Comments and New Positions

Yesterday the market rallied hard into the afternoon. I see that happening because investors who were shorting financial stocks were covering because of the possibility that the Fed will cut rates to bail out the market. I don't see this happening.

I've got a few new positions to talk about.

First, lets talk about America Movil (AMX). They are a major player in the Latin American wireless industry. I see this industry catching up quickly to the wireless capabilities of many other nations. It is under control of Carlos Slim, who is now the worlds richest man, and who's investments are rapidly gaining in value. If you're looking for an investor to follow, this isn't a bad one.

Second, I'm looking at a regional restaurant play in Granite City Food and Brewery (GCFB). They operate restaurants in the Midwest, but are expanding quickly. They have a nice menu of what I'd call "casual upscale." They also brew their own beer. They have a couple of short-term hurdles, which I am willing to wait out. The price of basic food is going up, which may hurt profit margins. Higher gas prices typically don't help restaurants, but I'm not sure that its hurts Granite City a ton. They reported earnings this morning that missed, and we'll listen to what we hear in the conference call later. The stock dropped 9 percent yesterday, and with it falling this morning, I scooped up some shares. I was planning to wait it out, but I feel this is a good value at this point.

Thursday, August 2, 2007

Clearing Out A Winner

I'm going to close the position for Garmin (GRMN). It has been a monster for the portfolio, gaining 85.50% percent for us.

Details on Garmin purchase: Bought March 5, 2007. Price 51.67.
Sold August 2, 2007. Price 95.85.
Net Gain/Loss: Gain 85.5%

Notes: I've followed Garmin for quite a while. They just reported a blowout quarter, which is great. However, I have seen it correct substantially before, especially when consumer and retail numbers start coming in weaker. I like it as long-term play, and may buy it again later, but I could see the stock come back 20% before continuing up.


Closed Positions YTD:

Frontier Oil (FTO): Gain 53.95%
Valero (VLO): Gain 27.85%
Garmin (GRMN): Gain 85.50%