Wednesday, January 27, 2010

Perspective of the World Turned Upside Down

I recently posted about the importance, in decision-making, of being open to a variant view. Following up, I thought it might be interesting to share this map with you.  It's the standard projection of the world--only upside down!  Everything is in exactly the same place on the planet, only reversed.  One has to wonder: how might history be different if this were the look of the world?

Tuesday, January 26, 2010

Are You Letting Feelings Color Your Investment Choices?

Have you read that its a good idea to buy the stock of companies you know and respect?  Companies whose products you use?  While there is some truth in those thoughts, sometimes the best thing is to coldly look at where the money is to be made, hold you nose, and buy companies you hate.

Case in point:  Here are the returns for some of the largest stocks in America for the ten year period ending 12/31/09:

Dell:      -71%
Home Depot:  -57%
Coca Cola:   -2%

Altria (the new name of the cigarette company Philip Morris):   +269%

Ironic and interesting, eh?

That's all for now.  Smoke 'em if you got 'em......

Will Oil Prices Plunge?

Even allowing for some overly optimistic assumptions and a bit of exaggeration, if what is being reported is only partially correct, this would be a major game changer in the global supply/demand equation and would ineviably act as a depressant on energy prices.  That's good news for the overall global economy. Go here for link to article.

Health Care Reform Is Dead. The Doctor Just Hasn't Called the Time of Death.

There is an interesting article on the current state of healthcare legislation from the Atlantic, via The Business Insider, publications known for middle to liberal leaning, so this is not a right wing rant.  It makes the case that healthcare reform is pretty much toast.  I think it merits your time. Link here.

Monday, January 25, 2010

This Is Why It's Our Largest Holding--And We Don't Own Enough!

Apple (AAPL) came out with earnings after the market close today, and the numbers were really quite astonishing.  How astonishing?  Let's just say they did well.

The troika of products--iPod, iPhone, and Mac continue to kick butt.  Especially impressive were the Mac results--up 33% in the past year.  I guess all the talk over the last year about stressed consumers not being willing to pay a premium price for this product was just so much hooey.  I confess even I drank a sip of the 'it's too expensive' kool aid. WRONG!

First, I want to warn you that much of what you will be reading about Apple is uninformed headline crapola.  There was an accounting change that is skewing how the numbers are reported, making them seem insanely remarkable, instead of just plain wonderful.

In any case, I know you don't want all the technical details, so lets just cut to the milk of the coconut: Apple is one of the market's great growth stocks, yet it is currently priced as if it were a sleepy value stock.  Here's what I mean:

The company has $40+ in cash and easily marketable securities on the books.  That cash hoard is growing at an accelerating rate.  If you 'back the cash out' and look at what earnings are on the remainder of the company, you find that Apple is growing at a 20% rate and has a PE of 13!  That's a lower PE than the overall market. And this is Apple for cripes sake!

So what we have here is one of the best run, most innovative companies in the world, selling for a below market valuation.  And that's BEFORE we even contemplate the possible game changing nature of whatever it is (the iTablet?) they will reveal to the world on Wednesday. Once their troika of game-changing products turns into a quartet of products, it's scary to contemplate what this company will earn.

Back up the truck, honey. My prediction is that Apple shares will double over the next three years.

Sunday, January 24, 2010

We're Getting Defensive--At Least Temporarily

While I still believe 2010 will ultimately be a very productive investment year, headwinds are mounting; frankly, the news flow is giving me the creeps. 

We have already taken measures to get more defensive and may continue to do so this week.  Individual account allocations will vary, depending on risk profile and personal issues, but we are generally 30-55% cash and bonds at this point, a pretty cautious posture.

Wall Street Pay, Part 37

For those of you who can't get enough of the whole Wall Street pay kerflooey, there's a really good cover story in this week's Barrons Magazine.  Go here.

The author's basic point is that, yes, these guys are paid too much, but it's the job of the companies and their Boards of Directors to make the call, not the U.S. government.  But at the end of the day, it is a good thing for shareholders if pay is reduced.  I agree, over time.  But until it all gets sorted out, the questions are likely to create a drag on stock prices.

A good read. I recommend it.

Oh, So It's Jobs You Want. Why Didn't You Say So In The First Place?

We are now hearing that the main focus of the upcoming State of the Union speech will be job creation.  Roll the tape back to this time last year: while jobs was a topic of discussion, Washington was headlining the historic move forward on healthcare.  The thinking was that the job situation, while bad, was under control and we would stabilize at 8% unemployment.

Fast forward to today: while a year has been spent in what seems like a fruitless quest for genuine healthcare reform, unemployment has soared above all expectations to 10%.  Not only did both Republicans and Democrats tragically take their eye off the ball, I'm not sure they even know what the game it in the first place.

So now jobs are the priority.  Well, I guess that's good to know.

I don't necessarily disagree (who could?) but I'm made a little queasy by the fact that Washington always seems to be fighting last year's war, rather than next year's war.  As bad as the job situation is, could it be possible that we've seem the worst and that the system will have, on it's own, made substantial repairs over the next twelve months? So what will be the problem--unspoken about and under the radar now--that we will be hearing about NEXT January after we've spent a year obsessing about jobs?

Just thinking out loud.  Your thoughts?

Yes, I am Concerned

I have to admit that this past week in the market was very disturbing.

Not solely because stocks that reported good earning fell sharply; given the run-up we've had, this kind of 'selling the news' is neither unusual or bad.  Many times these stocks pick right up where they left off after the profit-takers have finished their selling.

And not solely because the news out of Washington was disturbing.  Taking a profitable industry put to the woodshed for a spanking is noting new.  Two years ago it was the energy companies.  Last year it was the health insurance and drug companies.   Now it's the banks turn.

And not solely because the employment and housing numbers remain so disturbing.  That is nothing new.

And not solely because we are seeing major companies going head to head with foreign governments: i.e., China vs Google; that cannot be good for anyone.

And not solely because the market is freaking out when it hears that China is moving to raise interest rates and regulations in order to cool off their economy; even though the very same chicken littles were scared prevuously that China would NOT make an effort to ameliorate the effects of too hot growth.  Which is it, guys?

And not solely because the reaction of the Democrats to the shocker in Masachusetts was not to co-opt the opposition and move to the middle a la Bill Clinton, but to move further to the populist left a la George McGovern.

But when all these things become factors in the same week, I get a little concerned, ya know? 

I still believe we have the broader makings of a good year ahead in the market, but I'll be having an extra helping of vigilance with my cheerios this week.

Are Chris Matthews and Sean Hannity Your Investment Advisors?

We live in a 24 hour news cycle world where the political, the social and the economic get blurred in a frothy soup of confusion.  I always have to remind myself that mixing political views with investing can be hazardous to your wealth. 

Contrary to many perceptions, the markets are neither Republican nor Democrat.

Folks who insist on interpreting the markets through the lens of their political views are likely to miss what is actually happening.  I don't have hard statistics on this, but I would be willing to bet that the majority of investors who missed the rally in 2009 were Republicans who simply could not bring themselves to believe that such a good event could transpire under the aegis of a foolhardy Democratic President like Obama.

Likewise, I think a lot of the rally of 2003-2007 was missed by Democrats who could not see a half full glass because they were so incensed that an idiot like Republican Bush was running things.

Think about your market views over the past decade.  Is this true for you?

Behavioral finance theory tells us that we are incined to select information that meets our previuosly established biases, and ignore or downplay information that contradicts those biases.

I count myself as a member of this flawed human race, so my solution is to try to take in as many divergent opinions as possible.  And especially to make an effort to seek out opinions that may contradict the views I currently hold.  Being open to divergent views is essential to good decision making. 

This skill is sorely lacking in Washington.  Maybe that's why, whether it's the GOP or the Dems in charge, they all seem to be such royal screwups.

How many of these closed-minded, pompous twits would last long working in the private sector?

My Day at Tara

Of no interest other than to those who I visited with on Saturday:  I just wanted to give a shout out to Paul and Lydia: thank you for your hospitality.  :) Whatever happens, it was good to connect. (And yes, Paul, he IS a ballplayer!)

Thursday, January 21, 2010

Could The Administration Really Be As Stupid As They Sound?

I understand the political imperative:  You just got your political head handed to you by the embarrassing loss of  'The Kennedy Seat' in Massachusetts.  The dream of major health care reform, if not dead, is barely showing a pulse. What you are willing to settle for as a health care 'victory' would have been seen as an outrageous failure six months ago.  So what do you do to recharge your 'change' props and get back in the good graces of the 'angry' voter? 

You go after the greedy bankers.

Now, let me be clear:  You know that the term I've often used when referring to these Wall Street guys is 'bankster.'  So I don't have too high an opinion of their ethical makeup or professional skills. But the grandstanding speech given today about how 'we're gonna get tough on the big banks so they can't abuse the system and bring it all crashing down on us again' ignores one simple, but big, fact:

Most of the entities responsible for the meltdown were not banks.

AIG--not a bank.  Lehman--not a bank.  Bear Sterns, Fannie Mae--not banks.  Various and sundry mortgage brokers who peddled subprime crapola--not banks.  The rating agencies who took the crapola and slapped AAA ratings on it--yes, you got it--they weren't banks, either.

Even the survivors like Goldman Sachs and Morgan Stanley--they weren't banks when the meltdown occured either. 

So what are these guys in Washington smoking?

We have 10% unemployment; almost 20% underemployment.  Unemployment for people under the age of 30 in the black community is approaching 50%.  Yet the first major initiative after the Brown election shocker is to make it harder for banks to make money. (Yeah, THAT'S gonna really free up credit to small business.  That's really gonna help with credit card issues.)

Understand, I'm not worried about the banks.  They will find a way to work around anything that Washington can throw at them.  Other than the pain of a short term market correction, these proposed new regulations will be as irrelevant and unimportant as all the big talk about reining in health insurers and big pharma turned out to be over the past year.

But what about jobs?

I repeat, what about jobs?

One year into the era of change, can you give me the name of one specific job initiative.  Can you describe even one job program?  We have endless talk and posturing about health care and Wall Street bonuses, but the urgency of putting people back to work seems to always be an afterthough.


Where's the WPA.  Where's the CCC? Where's the real effort to get paychecks into the hands of ordinary Americans?  Either via direct government hiring, or by agressive efforts that gives a real and tangible incentives for private business to hire back workers?

But noooo.  Let's pretend that the anger we perceive from the public is simply anger about the fat cats. 

Well here's a news flash, morons:  if people had jobs they would give a flying fig about fat cats and if they don't have jobs, nothing you do to the fat cats is gonna help.

It was a disgusting and pitiful sight today to see rich white men who never spent a day in their life unemloyed and never had to meet a payroll trash other rich white men in an effort to shift the focus away from the fact that they have failed to do what they promised.

Corections Corp Corrects!

Corrections Corp (CXW), one of our larger holdings, has been really taking it on the chin for the last two weeks.  CXW is the nations largest private prison operator. It's a great business concept and I still believe they will do very well over time.

The main reason for the quick sell off seems to be questions about whether some of the state contracts, the income from which had been built into future revenue assumptions, will be renewed.  This is enough of a 'fly in the ointment' to cause us to quickly exit.  Could have/should have done it a week ago, and we may be selling at a short term bottom, but there are enough companies with solid no questions stories for us to own.  We don't need unknowns like this now.  We're out.  Sorry.

Golden Slacks Stays Golden

Goldman Sachs reported very good numbers today.  The stock renmains under pressure with all the bad PR and Washington saber rattling, but all those negative are just short term noise and static.  The overwhelming longer term story is that this company remains a money printing press and is clearly the best run financial firm on the planet.

Client position earnings scoreboard:

Positive 4/Neutral 0/ Negative 0

United Health Looks Healthy

One of our core healthcare holdings, United Health (UNH) reported good earnings and guidance this morning.  The weakness in employment that was a drag on enrollments seems to have been more than compensated for by price increases and new programs.  With punitive healthcare legislation seemingly off the table, we can look at the long term earnings potential of companies like UNH and see that even after the recent run up, they remain very reasonably priced defensive investments.

Client earnings score:
3 positive/0 neutral/0 negative

What Does 'Leadership' Mean in the Market? Why It Is Important That The 'Generals' Are Saddling Up

Market observers often refer to 'leadership.'  What they are talking about is groups of stocks that are outperforming the rest of the market.  We want to see 'leadership' coming from broad and important groups like financials and technology.  These are sectors whose healthy price action has far reaching implications for the economy and thus the future prospects of the market.

One of the things that is giving me a positive outlook on the market is the fact that we are seeing strength develop and/or continue in three very important areas:  financials, technology, and healthcare.  Companies in these sectors are reporting, on balance, very good results. Their guidance for the coming year, while naturally and prudently somewhat cautious, indicates that they se more positives than negatives as we move forward.

It seems clear to me that we are back to the 'normal' ups and downs and confusion we always see in the markets.  Severe meltdown as a potential scenario has been taken off the table.  It will be important for investors to 'disenthrall' themselves from the still fresh feelings of trauma that 2007-2009 instilled in us all.  If we do not, we will miss the unfolding opportunities.

Have You Downloaded From the iTunes Store?

One of the reasons we like Apple (AAPL) so much and have made it our largest single stock holding is the remarkable income stream that is still being grown from the iTunes store.  While most observers are still focused on the hardware--phones, ipods, macs, etc--Apple's online retail pipeline is creating enormous cash flow, with great margins.

Keep in mind that these numbers have continued to grow even in the face of the huge retail deacle of the past two years.  How many retailers have increased revenues 50% over the past two years?  None! Impressive, to say the least.

iTunes--stand alone--would be a major online retailer, and it's just a part of the mutifaceted Apple juggernaught.

Wednesday, January 20, 2010

'24' Obsessive Alert!

Here's a really fun blog for those of you who can't get enough of Jack Bauer.

What Does the Blog of the World's Richest Man Look Like?

I'm not sure if Bill Gates is still the world's richest man; I really don't keep track of those things.  Whatever.  But did you know he just launched a blog?  Yep, Bill the billionaire joins all the other guys typing away in their pajamas in their mom's basement. Heh, heh.

In any case, if you're wondering what a blog from a billionaire would look like, go here.

Earnings Beat From Coach

As we progress through earnings season, our latest reporting holding is Coach (COH), which beat estimates and gave positive forward guidance. As I noted earlier this week we pretty much expected this, given the positive news Tiffany had reported. Coach is a very well run company and has done a great job expanding their franchise into the 'affordable luxury' psace.  This is enabling them not only to weather the economic slowdown, but is helping them penetrate and gain customers in market segments they had never been in before.

Earnings scorecard for our portfolio holdings is now 2 positive/0 neutal/0 negative.

Monday, January 18, 2010

Bet You Never Heard of This Little Noticed Indicator

If you don't work in the investment industry, you probably never heard the term 'CUSIP number.'  The CUSIP is an identifier for all manner of securities, from bonds to stocks to funds.  An issuer must get a CUSIP number assigned before the security can be put out and sold on the market,

It is interesting to note that, for the first time since early 2008, the issuance of CUSIP numbers rose year over year for two months in a row in November and December.

Why is this potentially significant and important to know?

It could mean that we are seeing the beginning stages of a release of pent up demand for new issuance of securities.  This would have avery positive impact on a number of Wall Street firms.

This could be a nifty early warning buy signal, largely overlooked in all the brouhaha over banker's bonuses.

Sunday, January 17, 2010

Fav-Ree: Success is the Best Revenge

I just read a comment that captures it best:

Farve to skip post-game press conference, will instead clear roads in Haiti, cure cancer, balance Fed budget.

Whew! Post-Viking-fold depression put off for one more week.

Never Make Predictions--Especially About the Future

There's an old Yiddish phrase, Mann tracht, Gott lauch:  "Man plans, God laughs."

I am always reminded that what will unfold is, so much more often than not, very different from what we had anticipated.  This holds true for everything from politics to social trends to markets and money.

Even a visionary like Steve Jobs will find himself surprised, albeit pleasantly, with how business develops.  From a recent Newsweek article:

The lesson we've learned since then is that even the people who created the iPhone could not have imagined what people would do with the device. Much of the fun of iPhone involves software apps that didn't exist when the iPhone was introduced. Those apps don't come from Apple—they were written by thousands of developers who found inspiration in a new computing platform.

For the entire article, click here.

I bring this up to remind us all--especially me!--to keep a sense of proportion and humility as we hear and read in this new year confident claims about what MUST occur in the economy and markets.

Tuesday, January 12, 2010

Tax On Banks: We've Seen This Movie Before

Bank stocks are swooning on the heels of a report that the Obama administration is mulling a new tax on big banks that will help pay for the financial bailout.  Yet again, another case of politicians attempting to curry favor by sticking it to the 'big guys.'  A couple of years ago, we were hearing cries for a tax on 'Big Oil.' Whatever happened to that?  Then it was taxes on 'Big Pharma.'  Last summer it was new taxes and regulations on 'Big Health Insurers.' 

In each instance, the declines caused by the headline mongering cretins in Washington  turned out to be nothing more than opportunities to pick up quality companies at temporarily reduced prices.  The same will likely be true in the case of big bank stocks.

Why is this? Two reasons: First--and I can't believe politicians STILL do not get this--corporations do not get hurt by these punitive taxes; they merely pass the costs along to the consumer.  Second, after the puffed up pols get their ten minutes of air time, these proposals tend to get quietly watered down or killed behind closed doors.  When push comes to shove, no one up for reelection--Republican or Democrat--is likely to bite too harshly the hand that feeds the insatiable appetite of campaign costs.

I hate to sound so cynical, but it is what it is.  Just wait and see.  This is a movie we've seen before.

Luxury Strong

Tiffany (TIF) came out with strong earnings this morning.  While we do not own it, we do own Coach (COH) which should also benefit from similar positive luxury goods dynamics highlighted by Tiffany.  We'll see what Coach reports shortly.

Earnings Reports 1.0

I'll be updating the earnings reports that come out on our holdings. We'll try to keep it simple with a meet, beat, or miss notation.

At the same time, there will be other crosscurrents that are of a more macro nature, or noise that may be created by earnings reports from companies we do not own, that are driving the market.

I'll try to put it all in an easy to digest scorecard.

Our first reporting company is Infosys (INFY), the Indian tech outsourcing company.   They beat on top line and bottom line and guided up. :)

So the current score is 1+/0 neutral/0 negative.

At the same time, the markets are being pressured by the sloppy numbers reported last night from Alcoa (AA).  That will be the negative story driving the market today, but as more earnings come in, we'll get a better sense of what the direction this year may be.

Monday, January 11, 2010

China's Export Economy: Part Deux

The Economist magazine does its usual great job with a must read article about China and exports.

Auto Workers Hired Back? Wait--It isn't April 1, Is It?

I've never been a 'green shoot' fan.  Last spring, when green shoots were all the rage, it seem silly optimism.  And face it, every laid off auto worker could be hired back and we'd still have a terrible unemployment problem. But psychology is going to be an important element in the initial stages of the hoped for recovery in 2010. And I gotta say, this story--buried as it was today--makes you go, hmmmm.

Sunday, January 10, 2010

China Surpases Germany as Exporter

The Chinese juggernaught rolls on, as noted in today's N.Y. Times.

Wall Street to Main Street: "We Don't Buy It."

Just saw an article on Yahoo that again talks about how Main Street is so not in to Wall Street these days.  Money is being pulled out of stock funds and stashed in bond funds, etc. etc.

This is usually teed up as a bearish circumstance, the argument being: Main Steeet boycots Wall Street so stock prices stop going up. But let's step back for a moment:  if the reverse were happening, if the average investor were funneling all their money into the stock market, wouldn't THAT be held up as a bearish sign, the argument being that the little guy always gets in at the top?

I'm not making any market calls, all I'm saying is that some observers want to have it both ways: little guy doesn't invest--bad for stock prices/little guy does invest--bad for stock prices.

Which one is it?  Can it be both?  Neither?  Enquiring minds want to know...

Check out article here.

Saturday, January 9, 2010

Welcome to the Future: We're ALL Temps Now

Apropos of my post below on unemployment and the increase in temp employment, use this link to acccess a good BusinessWeek story, 'The Permanent Temporary Workforce.'

Now THAT'S a Skyscraper!

Interesting graphic of the realtive heights (and shapes) of world's tallest buildings.

Employment: What You Need to Know

Employment numbers released yesterday gave little solace to those looking for light at the end of the tunnel leading out of the employment house of pain.
  • Optimistic observers were expecing a push, or possibly a few jobs created; in reality an additional 85,000 jobs were lost.
  • The unemployment rate stayed at 10%.  But that was only because workers who simply stopped looking were dropped from the stats. Back them in again and we'd have unemployment at @10.3%
  • The number of underemployed American rose to 17.3%.
All in all, a picture of employment that is at best stuck on neutral, with little major moves one way or the other.

One of the few bright spots, however dimly glowing, was the increase in temporary employment.  That stat is one of the leading (and by that we mean forward looking) employment indicators.  Employers who are still jitery about the reality and strength of a recovery will tend to hire temps to meet demand before they commit to hiring back full time workers.  So we always see an increase in temp demand before we see an increase in hiring. Temp employment increased for the fifth month in a row.  This seems to indicate that employers are at the stage where they are trying to 'make do' with the work force they have and picking up slack with temps rather than new hires.  Temp professionals will tell you that temporary hiring leads full time hiring by 4-6 months.  So we may be toward the end of the very first phase of healing and temp hiring could transition to full time hires in the next 1-3 months.

Bottom line: no great news for some time on the employment front.  But the bottom is no longer dropping out.

So why has the market been rallying?  I hate to write this, as it sounds callous and unfeeling, but the story--at least in the stock market--may no longer be about 10% unemployment.  The story may be what is happening at the intersection of companies who have cut operating costs to the bone with with the 90% who are still employed.

Here's the thesis: 6-9 months ago, as unemployment was skyrocketing, no one knew if their job was safe.  So even those with jobs began to hunker down in an extreme way.  Now, as unemployment seems to be stabiizing at current levels, those who have made it through with their jobs intact, while still in frugal mode, do not feel as much need to be in hyper-frugal mode.  Spending thus gets freed up, ever so slightly. You combine that with the extreme cost cutting that many business have imposed on their operations and you get a situation where even small increases in the top line translate into healthy increases in the bottom line.

That positive earnings dynamic, even in the face of overall employment headline malaise, seems to be the subtle underlying message the market is delivering.

Friday, January 8, 2010

Surreal Chinese Empty City

This has got to be one of the most surreal news reports I've seen in a while, and should send a shiver up the spine of every China bull. The Chinese are wonderfully industrious people with a rich culture and history--and a world class ability to coexist in an alternate reality. Very bizarre, almost Monty Python-ish, indeed. (Be patient til about 1:20 into the story. It's worth the wait. Yikes!) For a related story in the current Business Week, go here.

Thursday, January 7, 2010

Future Laptop

This is amazing--and I'm so so sure it's all that 'futuristic.' Seems like we could see most of this technology pretty soon. Wouldn't it be a blast?

Whitney, GS and Financials: Part Deux

As noted on Tuesday, Goldman Sachs (GS)--and by extention the broad financial sector--seems  to have stood ground well in the face of Meredith--the Hammer--Whotney's downgrade and gloomy commentary.  GS is up some 5% in the 48 hours since then and the rest of the financials are also rocklng.  We're seeing nice moves in other of our financial positions like AGO, STT and PRU.

This remains a market that is confounding the best and brightest.

Wednesday, January 6, 2010

This Hated Bull Market

Really, with the possible expceptions of Jim Cramer and Larry Kudlow, NO ONE seems to be comfortable with the rally in the market for the past six months. A blindingly smart advisor, Tim Collins of TangleTrade Management, wrote on the Real Money Silver site what I thought was the best explanation for the average investor's current trepidation:

Why aren't people more bullish? Let's say you hand someone a drink. They take a drink, and it tastes so nasty that they have to struggle just to swallow it. You apologize. You say it was just an accident. Go back in the kitchen, and grab them another drink. They hesitate for a moment, then take a big gulp. Blech...yuck! This one tastes worse than the first one, and they spit it out all over their shoes. Again, you apologize, and go back the kitchen to get them another drink. Now how do you think they will react? Are they going to gulp it down? Even if they watch you get it, they won't. They will sniff it. Swirl it in the glass. Stare at it. Sniff again. Maybe even take a little sip. Even if the sip tastes fine, they will still be hesitant to take a big drink. It will take lots of small sips before they feel comfortable again. And it will take awhile before they trust you to get them a drink again.

It is psychology. It is distrust. The internet bubble. The housing bubble. The 2008-early 2009 market. These were some pretty nasty drinks. You simply cannot regain the trust that the individual investor lost in the short of a timespan. You can pound the table all you want, and tell everyone how good the drink is. It won't matter.

Makes sense to me.

Good Bob, Bad Bob

Our trading accounts were fed a slug of Chinese solar manufacturer Renesola (SOL) just before Christmas at @ $5.04.  Bad news:  I panicked and sold a quarter of the position for a small loss on recent weakness, only to see it explode again to the upside.  Good news:  we still own 75% of the original position.
Lesson:  Scale in and scale out unless there's a really good reason not to.
SOL is @ $5.70 at noon today.

Apollo is my Creed

Ok, sorry.  'Rocky' movie puns certainly date me.
Time, though to call attention to Apollo Group (APOL). They are the country's largest for-profit education operator.  This stock has long been a love 'em or hate 'em stock, with vehement voices on both sides.  Those bullish on the stock, like me, see it as a beneficiary of the weak job market.  In this kind of environment, many unemployed and underemployed folks go back to school to upgrade the education portion of their resume in hopes of being more attractive on the job market.
After a nice run earlier this year, the stock was devastated toward the end of October on the heels of a report that the Feds were looking into some of their internal processes. We started our position toward the tail end of the decline and are now seeing the stock move again above our purchase price.  The action has been very positive over the past month, even in the face of a lackluster market.

From my perch, I think the market is saying that the investigation will turn ut to be a non-starter and we could see Apollo continue to march back up to where it was (mid $70's) before the announcement.
As of noon today, Apollo is up 4% to @$64 in an otherwise down market.
Disclosure:  Apollo is widely owned in our accounts.

Tuesday, January 5, 2010

Oooh, Visa--I Love It When You're Bad!

Very interesting article in the New York Times about one of our holdings, Visa (V).  Tsk, tsk, boys.  Play nice.  Click here for link.

Another Tell

Meredith Whitney rightfully garnered much acclaim by her prescient bearish call on the banking sector long before many recognized there were problems. Since then, her comments, both bullish and bearish, have been real market movers.  Until today.  Today she reduced her earnings estimates on Goldman Sachs, and while the stock initially sold off on the news, it has since recovered to session highs.  That makes four days in a row of GS going up while the market drifts.  That's the kind of 'tell' on both Goldman and the financial  sector that one looks for to sense what the next major move may be.  I think we go higher from here on the financials.

Someone Is Very Wrong.

I'm looking at what is moving on my screens lately:  autos, airlines, retailers.  This is not supposed to be.  Aren't we in a consumer stressed economy?  Either the market is placing too much hot air beneath these sectors and is setting participants up for a real licking--OR--the market is telegraphing that the blah scenario forseen by many really won't be as blah as expected.  Hmmmm.....

Research in Motion Upgrade

Research in Motion (RIMM), a holding in a number of our trading accounts, has been frustrating of late.  We own it and have been patient because I feel that all the growth in phones over the next five years will be in the 'smart phone' segment, and there are really only two major players at this time:  Apple and RIMM.  There is plenty of room for both to grow enormously; it's not a zero sum game.  In any case, this morning Morgan Stanley upgraded the stock to 'overweight,' with a $90 price target.

From their mouth to God's ears....

Monday, January 4, 2010

Top Bond Fund Pick: Third Avenue Focused Credit

Third Avenue Focused Credit (TCVFX) is a new fund with a great pedigree.  Third Avenue is a money management firm founded by legendary investor Martin Whitman who made his reputation pouring over balance sheets to uncover values that others didn't see. This kind of 'forensic' investing, so successful in his stock picking, is now being applied to the broad bond market. The trauma of the past couple of years has left much to be discovered beneath the seemingly placid surface of the bond market. The fund was rolled out this October.  It's mission is to uncover and exploit opportunites in the bond market, particularly among restructurings, distressed debt situations and high yield mispricing.  All pretty arcane to many--a far cry from just throwing money at some S&P 500 stocks--but that's what makes these guys so good.  They do homework few others have the time or expertise to do.

We heard about the fund late last summer when it was still in registration, jumped in right away when it lanched in October, and have been steadily adding it to conservative and moderate risk accounts since then. From a tactical standpoint, we have moved much of our more interest rate sensitive bond holdings to this fund.  If the economy does recover some in 2010 and interest rates rise, Treasury notes and bonds will decline in value while the holdings of a fund like TFCVX are likely to actually benefit from improved economic conditions.

The Fund is now our single largest position in our moderate risk accounts and is a top ten bond holding in our more cautious alocations.  For those of you who would like to get the latest skinny on the fund, Business Week just came out with a boring, but informative, interview with the lead manager Jeff Gary.  Here's the link.

Data Continues to Point to Slow, Steady Improvement

From today's Wall Street Journal:

The ISM's manufacturing purchasing managers' index rose to 55.9 last month, from 53.6 in November. December's reading was above the 54.0 forecasted by economists surveyed by Dow Jones Newswires. Readings above 50 indicate expanding activity.

"The manufacturing sector grew for the fifth consecutive month in December as the PMI rose to 55.9, its highest reading since April 2006 when it registered 56," said Norbert Ore, who directs the survey for the ISM.
The ISM's new orders index increased to 65.5 last month, from 60.3 in November, while the production index rose to 61.8 from 59.9. Both indexes suggest orders and output were increasing strongly in December.

Factory employment also showed gradual improvement. The index stood at 52.0 in December, from 50.8 in November. Economists expect total December payrolls to show little change when government data are released Friday.

The fly in the latest ointment continues to be weak construction spending and a job picture that is still ugly.  I don't expect good news on either of those fronts for some time. Thus, the real question for 2010 remains just how much weight to give the negatives of jobs and housing against the positives that are unfolding.

More on the Mythical, Mystical, Long Awaited, Longed for Apple Tablet

The New York Times has an excellent extended article about e-readers, Apple and what may be unfolding in the next generation of print/reader interfacing.  Well worth your time, if you're in to these things.  Click here for full article.

Happy to be 'STEC' on you.

Another positive call on STEC this A.M.

Deutche Bank reiterates their BUY rating and $36 price target, calling STEC their top pick for 2010.

After the rally in 2009, it's not easy to find stocks that have price targets DOUBLE that of their current price. (STEC is now @$17 and change.)  This is the second major firm to call for a 50-100% move in this stock.

We own it in our active trading accounts. Not enough, though, as it appears.

Sunday, January 3, 2010

Leading Economic Indicator

It is a New Year’s Eve tradition in many parts of Latin America to ring in the new year wearing new underwear. There’s more: The color of the underwear signifies what resolution one is seeking for the year ahead. Red means love. Yellow means money.

At Mexican markets, according to one published report cited by Mr. Lacey, yellow undergarments are flying off the shelves at a far greater pace than red ones as Mexicans seek to rebound financially.

“Before, we’d sell more red but today everyone needs money more than love,” Javier, who has sold underwear at the sprawling Martínez de la Torre market for a decade, told El Universal newspaper.

Saturday, January 2, 2010

Ignore at Your Peril

Near the top for most valuable investment factoid of 2010:  four out of every ten people on the planet live in just these four countries: China, India, Brazil and Indonesia.

Think about the implications for natural resource supply and demand as well as burgeoning global consumer demand. (An interesting side note: a Buddhist, a Hindu, a Catholic, and a Muslim country.  Add 'walk in to a a bar' and you've got a joke in there somewhere....)

APPLE: Let the Speculative Games Begin!

For some time now Apple watchers have been served up rumor after rumor about a new large screen i-whatever to be announced towards the end of January. Here is the latest tidbit, via CNET:

"Sure, every blogger worth his salt has weighed in on the long-rumored Apple tablet that may or may not be--its possible size, shape, specs, debut date, and on and on. Now offering up a perspective on the matter is a high-profile tech industry executive, Kai-fu Lee, who until recently was the head of Google's China operations.

It seems that Lee, who's now working to foster entrepreneurship in China, wrote on his Chinese language blog earlier this week that Apple CEO Steve Jobs will be releasing a tablet PC in January, and expects to produce a voluminous 10 million in the first year, according to the IDG News Service and other media outlets.

The tablet, according to Lee's post, will have a 10.1-inch touch screen and will look like an oversize iPhone. Other features are said to include a virtual keyboard, 3D graphics, and support for videoconferencing and e-books. The price reportedly will be below $1,000.

Coincidentally, reports have emerged in recent days that Apple may have an event planned for January 26 in San Francisco, with a focus on mobile offerings, and that Apple has told software developers to conjure up versions of their iPhone apps suitable for a larger-than-iPhone screen."

I, of course, have no inside knowledge on any of this.  All I can say is that if Apple does unveil a tablet device that is worthy of Steve Jobs' insanely high standards, it will be a game changer on a level of the iPod and iPhone. Apple is already very reasonably valued (or undervalued) with their current line up of devices; one can only speculate how high the share price can go over time with a third cutting edge game changing device. (And for you doubters out there who claim that each new Apple device will just canniblize their curent line up, remember that this was not the case with the numerous iterations of iPod and iPhone.  All that has happened with each new rollout is that the brand has been extended.)

Apple is already our largest holding in growth oriented accounts.  I hate to load up even more at these high prices, but something tells me that even $210 per share is going to see like a bargain one year from now....