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%

Wednesday, August 1, 2007

Up and Down

I'm not liking what I see short term. The market is seeming to be held up each day by a few strong earnings announcements, but what happens when earnings season is over? Lots of stocks are trading hard to the downside, especially stocks with that led the charge over the past three months.

People are pulling money from oil stocks like crazy in anticipation of crude oil prices dropping. This is understandable. Lots of money has been made on these, and people are protecting profits.

There will be good chances to get into these names with strong prospects for the next couple years, but I'm not buying yet. I think its best to hang tight.