Tuesday, August 31, 2010

Feels like the dam is about to break

Do you ever get that feeling that the dam is about to give out, or that it already has and we just don't know as we sit in front of the tv, watching our favorite show, not knowing that a zillion gallons of water is on the way. That's what this market feels like.

It's clear that rampant speculation has taken hold of our markets. Bets to the upside and downside. Huge swings are the norm now. I just read that S&P 500 stocks have their highest correlation to the S&P, 81%, since the 87 crash. This isn't to say that a crash is imminent, but that this is what we see during huge up days or huge down days. Everything moves up or down together, but this usually last a day or two or three, not weeks or months.

This might all sound odd because the stocks make up the index, but each stock should trade on it's own fundamentals, thus some go up and some go down based on what's going on with them. When the correlation moves that close to 100%, somethings really wrong and is a sign that technical traders and other speculators are in control. Group your portfolios by industry and watch every stock in that group trade together nearly every day regardless of individual situations. It doesn't just happen sometimes, but every day. Think about this, the historic average is about 40-45% and we've been near current levels for a very long time.

None of us here are technicians and we don't like the technical talk, so markets like this put us at a disadvantage when they persist. I actually think 99% of retail investors are at an disadvantage, which does not bode well for retirees.

This market feels and looks sick. Time to be smart. Avoid the big stories, avoid high flyers, buy fundamentally sound companies that benefit from a growing economy (yes I said growing), companies that pay a dividend, leave options alone, be patient and pick your moments to get in, count on extremes (something isn't a bargain until the price has fallen by an extreme amount), and invest, don't trade.

my 2 cents


Sunday, August 29, 2010

Are we at the beginning of an M&A frenzy?

I think companies are just now waking up to the fact that there are a lot of bargains out there, or maybe banks are just starting to lend again. Either way, with the Potash, Genzyme, and then the 3Par bidding war, it's clear at long last we've got some buying.

We've expect acquisitions in the commodities (fertilizer, ore, coal) space and biotech area for a while. We still think there's a good deal more to come in both of these areas. There are so many small to midsized, very promising drug/biotech companies that there could be a sudden rash of acquisitions there.


Wednesday, August 25, 2010

Option pirates

In case you haven't been paying attention, option traders (pirates) have adapted to an environment where people are a bit more savvy. All or nearly all equity options used to expire on the same day, the third Friday (technically Saturday) of the month. Not any more. There are options expiring all over the place, on any Friday it seems. Not a lot, but some. Our feeling is that this will catch on. Suspicious thing is, there was no media play on this.

Beware, as this market can be hazardous to your retirement. For those non believers and investors who haven't been paying attention, what goes on in the options market has a lot to do with what goes on in the equity market.

These are treacherous waters, be advised.


The range is clear

Make no mistake about it, we remain in a trading range from about 1040 to 1100 initially and 1010 to about 1120 next. I hope you're at least collecting a dividend. All this talk of a double dip, if we're not careful we'll end up talking ourselves in to one. Our readers know the dividend plays we like.


Thursday, August 19, 2010

So predictable

Doesn't really matter these days what the economic news looks like, the markets are ruled by speculators. Get used to it, as we don't see it changing unless someone in Washington decides to do something.

We had another big acquisition announced today, Intel (NASDAQ: INTC) buying McAfee (NASDAQ: MFE). We like the deal, as it diversifies INTC's business in a good way.

The market tanked after the Philadelphia Fed number. Who cares, this is the bottoming process. You bounce along the bottom for a while. The numbers don't really drive trading, it's just an excuse. Thursday and probably Friday had/have more to do with options expiration that economics.

We'd be big buyers of INTC down here. We liked it under 20 and love it under 19. Double digit growth and a 3.3% yield.


Wednesday, August 18, 2010

Finally, the deals are back

We thought this would have happened months ago, big deals getting done. Everything has been on sale for well over a year now and the fertilizer sector has been ripe for picking with many names hitting multi-year lows over the past 2 years.

The Potash (NYSE: POT) is going higher, no doubt and expect more in this space. The longer would be acquirers wait, the more they'll pay. I don't think Mosaic (NYSE:MOS) gets bought, just because ADM owns so much. Some of the other names are definitely in play.

We also had a smaller deal announced with Reynolds shelling out nearly $5 bills for Hefty Bags.


Tuesday, August 10, 2010

More discussion on flash trading

The SEC opened up for comment, rules to ban Flash Trading I believe last month. They're dragging their feet on this issue. Instead of just banning the practice all together and getting on with it, they want to know what people think. When I say "people", I mean those who benefit most, the professionals and the exchanges. It's really become a joke and so transparent. The exchanges will tolerate anything as long as it increase volume and volatility.

In case you're not up to date, Flash Trading is where CERTAIN PARTIES are shown (flashed) incoming buy/sell orders in a split second before the rest of us. How is this even legal? Why would anyone think this is legal. It's 'front running', which is illegal. Professionals like, you know who, claim it helps them provide better pricing and increases liquidity. Give me a break.


Thursday, August 5, 2010

No man's land

Does anyone else feel like the markets are just churning back and forth? Feels like we're in a fog and no one knows where we're going. We've been cutting back on some of the high beta names and moving that money into more reliable dividend and growth names like Intel (NASDAQ:INTC) and even some in to Frontier (NYSE:FTR) which after the dividend reduction will be yielding 10% at these levels. We've split money between FTR and Verizon (NYSE:VZ) which we love, but under 29.

Our high riskier bets have been concentrated these days in names like Cliffs (NYSE:CLF), Freeport (NYSE:FCX), Transocean (NYSE:RIG), and a couple of biotech plays Arena (NASDAQ:ARNA) and Vivus (NASDAQ:VVUS), oh yes and Citi (NYSE:C).

On the next market run up we'd look to get out of CLF, FCX, and RIG. Those first two names just trade too much like 3x leveraged ETFs to hold for too long.


Tuesday, August 3, 2010

Our disappointment with DOW and relief with BP

After reading/hearing the conference call for Dow Chemical's (NYSE:DOW) 2Q report we're happy with the numbers and not at all troubled by the miss, as we put little into what analyst forecast. We're more disappointed with the lack of clarity around the dividend.

To just say, something like maybe sometime in 2011 or 2012 we might see the dividend addressed isn't good enough. We expect more clarity around the situation, especially after we recall the CEO saying he'd never cut the dividend last year. I think many companies are taking advantage of the situation and may be attempting to create a new norm. We're not getting used to little divs, as there are plenty of companies that are paying hefty dividends. We sold some in response to what we heard today and will re-evaluate next quarter.

BP looks like it finally got its act together and should have done this earlier, but better late than never. We still believe the dividend comes back sooner than most think, sometime between Jan and Mar. That saves the company about $5 billion. Throw that on the pile with the $7-$10 billion in asset sales and a few billion just laying around the office and there's your $20 billion needed for claims.


Monday, August 2, 2010

Verizon and AT&T getting down to business

It's about time they went ahead and did it. Verizon (NYSE:VZ) and AT&T (NYSE:T) are getting into the mobile payments business. That was just a matter of time, as this is pretty common in other developed nations. Pay with your cell phone, oh what a "new" idea.

I still believe VZ should be a core holding in the long term retirement portfolio. What's not to love; huge dividend, solid growth prospects, and only one real competitor. Why keep that money in that lousy CD paying you nothing when VZ predictably trades between 27 and 31 and yields 6.5%.


The Vix

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Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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