Pokeypine Stock Market Blog

Feeling bullish

2008-10-13T22:59:00.000-07:00

Ticker Price EPS08 EPS09   Div   Book PE
DELL  $15.21 $1.44 $1.65 $0.00  $1.44 11
Q      $2.74 $0.41 $0.43 $0.32  $0.29  7
MSFT  $25.50 $2.12 $2.39 $0.52  $3.96 12
ADSK  $27.77 $2.28 $2.61 $0.00  $5.60 12
BMC   $27.31 $2.14 $2.41 $0.00  $5.14 13
NOK   $17.12 $2.22 $2.22 $0.78  $4.29  8
IBM   $92.21 $8.73 $9.42 $2.00 $20.86 11
XOM   $73.08 $9.00 $8.96 $1.60 $24.03  8
CHK   $20.20 $3.81 $3.93 $0.30 $17.58  5

The above are some current stocks that look good to me on a fundamental basis. Look at those P/Es -- nice and low at long last. The market crash has perhaps created some bargains. Another bargain may be the electricity producer RRI, which is selling well under book value - and we're going to go on using electricity I'm pretty sure. Also the railroad BNI. Railroads use much less energy to move things than trucks, and so with ongoing high energy prices they may be a good bet. So far my favorite is IBM, no longer really a computer company but more a business services company, with customers worldwide, a real blue chip.

Wall Street in Turmoil: What To Do

2008-09-22T16:15:00.000-07:00

I'm going to resist the temptation to delve into politics and criticize the big mess on Wall Street. There's plenty to criticize but no one (in power anyway) cares what I think.

What is an individual investor to conclude from the situation? I see these things:

The rating agencies who handed out AAA ratings like candy are not to be trusted. The paranoid among us note that they are paid by the issuers of securities and a good rating helps sell them. Giving a AAA rating to investment banks with 30:1 leverage ratios is clearly bogus, as a 4% drop in asset values wipes them out. Like most people, they simply thought that real estate prices would rise forever. Repeat after me: Trees don't grow to the skies. Anytime anyone asserts that a market will never fall, run for the exits.
It is actually safer in invest in lower rated securities, assuming you have diversification as in a mutual fund. There you get a higher interest rate to compensate for the higher risk. AAA securities may or may not be safe, but you can be sure they will pay a low rate.
Trust your own instincts as to what is safe and what is not.
Now that we are into a bear market, it's time to check on asset allocation. One rule of thumb I like to use is to have a certain percentage of your assets in common stocks, declining as you get older and less able to recover from a loss. I like the rule of 110 minus your age for the percentage of your net worth in stocks. If you've been managing your asset allocation, the market drop may mean that you now have too little in stocks. In other words, it may be time to buy. How can you buy with all these screaming negative headlines? Well, that's a good sign for a buyer. When everyone is patting themselves on the back, that's the time to sell.
What to buy? I've noticed that our old friend the tech stocks have taken a pretty good pounding, even though sales are holding up and they rarely depend on borrowed money. I'll be looking them over for bargains.

Capital One gains by spurning mortgages

2008-09-11T15:48:00.000-07:00

Interesting Dow Jones article yesterday interviewing the CFO of Capital One. They have deliberately spurned having mortgage debt on the books in favor of unsecured debt. They figure the unsecured debt is actually safer, as credit is extended on the basis of the borrower's ability to pay. Mortgages have been granted based on the security of the underlying asset, and when that falls in value, the holder is in trouble. Capital One has done relatively well in the credit crisis, and perhaps is a buy. Capital One Finance (COF) trades at about $46.

UAL Stock Takedown

2008-09-10T15:23:00.000-07:00

I think this story about UAL is fascinating. Apparently, an old story (2002) about United Airlines (ticker UAL) filing for bankruptcy got enough hits on a Florida newspaper's website to have it appear in their list of top stories of the day - generated automatically by the web server. Then because it appeared in this list, it was picked up by Google News as an important story of the day - again, this happened automatically by the Google news computer program. Then because it appeared in Google News, UAL was sold and sold short by automated trading programs - again, without human intervention.

The UAL stock price plunged, and then later when the truth came up, mostly recovered. So far, it appears that this snafu was just coincidence. For some reason, this old article got some hits, and the ball started rolling from there. But obviously, it could be used to manipulate stock prices - in a new way, and there aren't too many of those. It certainly shows up the flaws in using computers to process what ought to be done by humans.

UPDATE: Today's WSJ says that the whole thing was triggered by ONE HIT on the old article. It was during the middle of the night, when there was little traffic but it was enough to put the story in the top 10 of the hour and start the whole debacle rolling.

Housing prices

2008-08-11T11:30:00.000-07:00

Many homeowners have a peek at Zillow every now and again to see how much their home is worth. Maybe not so often these days as it is apt to be falling! By conventional standards, families can afford a home priced at two to three times their annual income. In our neighborhood, houses are $600,000 and up. And I know most people are not making $200,000 to $300,000 a year. Of course, most bought years ago when prices were lower. But for prices to stabilize, people must be able to afford to buy at current prices. And I don't see that happening yet. I think housing will fall an additional 40 to 60 percent from current levels.

Oil prices

2008-08-10T17:58:00.000-07:00

While I am still a believer in peak oil, oil prices have risen too far, too fast. The prices north of $140 a barrel could not be maintained and have fallen back. I'll go out on a limb and predict that oil will fall below $100 a barrel in the near future (spot price today is about $115). This will be good for the economy and the stock market, but don't be fooled. The long term trend is up and we'll see $140 oil again.

Financial stocks

2008-01-25T11:10:00.000-08:00

I've sold my Citigroup stock (C). Big whoop, you say, the financial crisis has been all over the news for months? Well here are my thoughts on the matter: I think it's best not to invest in financial stocks at any time, because the CEOs get paid for short-term results while the shareholders are left holding the bag for long-term losses. Citigroup and Merrill Lynch CEOs walked away with a bundle during the go-go years just past, leaving their companies loaded with bad debts. Surely these financial experts knew very well that all those subprime loans were going down, but it didn't matter - they just needed a few quarters of paper profits to pocket millions in bonuses.

The big problem with financial stocks is that they make their money borrowing short-term and lending long-term, and for this to work requires a conservative approach. Whereas maximizing the CEOs bonus requires a speculative approach. This fundamental disconnect makes the stocks a bad bet.

Tighter Immigration

2008-01-18T21:29:00.000-08:00

The business papers have well noted the bearish effects of the housing meltdown. The tightening immigration situation is another bearish factor that is not often considered. Illegal immigrants work and produce things in this country, and they spend money here. They also need houses and apartments to live in. Deport them or make it harder for them to come here in the first place, and you reduce GNP. I'm just saying.

Election Day 2007

2007-11-06T17:09:00.000-08:00

OK it's next Election Day now. Let's review: Saddam Hussein was captured Dec. 16, 2003 and finally executed Dec. 30, 2006. (I wonder how many have died in Iraq since 12/16/03?) Dow Jones is at 13,660 - up 1,500 from last election day. Crude oil traded at a record $97 a barrel today.

Speaking of oil prices, I remain bullish. Producers seem unable to increase production, inventories are short, and in China and India car ownsership is booming. There's no telling how high oil will go - it could easily reach $200.

VDMIX closed at $14.63, up 28% from May of last year when I touted it. I remain bearish on the dollar. The trade deficit shows no sign of slowing and the budget deficit is out of control. The big event coming up is when foreign goverments start to keep their currency reserves in a mixture of dollars and euros (which is only prudent) and which will hammer the dollar.

Microsoft is $36.41 - getting to that $39 target. The point & figure target is now $50, but I don't believe it. The new Windows Vista is lame and IMHO inferior its predecessor Windows XP. The new Office is nothing special. Soon people will wonder why they are upgrading. And the Mac OS now runs on Intel and could easily be sold for use on non-Apple PCs - then what happens to the Windows franchise? More on this later.

Election Day

2006-11-07T00:19:00.000-08:00

Saddam Hussein sentenced to death two days before the election - coincidence? There is an appeal process, so perhaps his hanging will be delayed until the next election - we shall see. Dow Jones average at new high just before the election - will it drop afterwards? We shall see. Gas and oil prices ease - will they rise after the election? We shall see. Today's DJIA 12,105 and crude oil $60 to the barrel. Saddam still alive and kicking.

The Decline of the Dollar

2006-05-26T16:44:00.000-07:00

The United States dollar has served as the world's main reserve currency since it took over from the British pound after World War II. Asian countries in particular hold huge amounts of US treasury debt as backing for their own currency. The Bush administration has cut taxes and increased spending, especially spending on war in the Middle East. As the national debt rises higher and higher, how will it be paid off? The choices are raising taxes, cutting spending or allowing inflation to do the dirty work. The President is famously in favor of tax cuts, and has said that the war in Iraq will continue through the end of his term. If a Republican wins in 2008, he or she is unlikely to end the war quickly, and the leading democrat, Hillary Clinton, voted for the war. So the huge deficit continues into the indefinite future. Those countries that hold all these dollar reserves must be thinking that a little diversification would be prudent, most likely into the euro and the yen, I would think, though Far Eastern politics might make yen reserves unlikely. Such a change, plus the increased amount of debt to finance, would force the US to raise interest rates to attract sufficient funds. And these higher interest rates would be bad for US stocks. So I'm thinking it's time to devote a significant fraction of the portfolio to European stocks and perhaps Japanese ones as well. Even if the stocks go nowhere in their native currency, the currency shifts will turn them into big dollar gainers, and the US stocks by comparison will suffer from the effects of high interest rates.

One mutual fund that looks attractive is Vanguard's Developed Markets Index Fund (VDMIX). It's invested 2/3 in Europe and 1/3 in the Far East. Today's price is $11.38.

Limit orders

2006-04-08T15:29:00.000-07:00

Back in the days when I was a follow of stock charts, I used to believe in stop orders. Like if a stock was trading at 50, I wouldn't buy it until it rose to 52. This on the ground that it had at 52 broken out of a formation and now had upward momentum.

Stop orders didn't work well for me. Often I would get bad fills and then my supposed start of an upward movement would be just a little jump and I'd wind up paying the most anyone had paid for the stock in months.

Now I always use limit orders to initiate a position. A chart is still useful to me to see what kind of price range has been usual in recent weeks. Then I pick a price near the bottom of that range and buy only if it gets down there again. I get much better fills and if a stock shoots up so I gon't get in, well that's the breaks.

I also use limit orders to sell a position. Pick a price a little above where it's been lately and wait. I am usually rewarded with a good price for my shares.

Selling covered calls

2006-03-12T13:58:00.000-08:00

Selling covered calls is one (conservative) way to make money off a stock stuck in a trading range. The idea is to sell a call on a stock that you already own. If the stock shoots up, your stock will be called away (sold) and you'll get for your stock the strike price plus the premium you collected when you sold the call. For example, Microsoft closed Friday at $27.17. The July 2006 27.50 call closed at $1. If you sold one and the stock went up you'd get $27.50 + $1 = $28.50 for your stock. If it closes below $27.50 in July, you can just pocket the $1 premium and keep your stock. If it drops, hey bad news, but at least you have $1 per share to cushion the loss somewhat.

What I do is determine a trading range. MSFT in the last year has traded in the $24 to $28 range. When it gets near the top of its range, sell covered calls at a strike price as near as possible to the current price. If the stock drops down to the lower part of the range, buy your call back to take your profit and close the transaction. You can do this over and over if you are lucky.

MSFT breakout?

2005-11-17T23:19:00.001-08:00

Barron's this weeks suggested a revival in Microsoft stock. And today the stock traded at 28, generating a point & figure buy signal. (I do have a soft spot of P&F charts, after watching so many floor brokers at the Board of Trade follow them back in the 1960s.) Here's the chart from StockCharts.com: Note the price objective of $39 - woo hoo, that would be good. It has certainly been building a nice big bottom for some time now.

Apple update

2005-10-16T21:54:00.000-07:00

Looks like my AAPL prediction on June 6th didn't work out. The stock was around $38 then. I thought Mac sales would drop awaiting the new Intel boxes and hurt Q3 sales. The stock closed at $54 on Friday. I was wrong - iPod and iTunes are dominating the Mac computer stuff, and people aren't shying away from buying computers with the lame duck G4 chips. Perhaps a change of CPU doesn't hurt as much these days as it did in the past. Perhaps people don't much update their software anymore unless they get a new computer.

Sigmatel

2005-08-09T15:30:00.000-07:00

Billy and his friend Gary have written me about Sigmatel (SGTL). To quote SigmaTel.com "SigmaTel offers a wide range of mixed-signal ICs that convert real world analog signals, such as music and voice, to digital signals required by computers for processing and playback." In other words, they make MP3 chips and the like.

Billy writes (edited): How come Sigmatel seems to be making so much money and has such a low stock price? The interesting thing is Portal Player (PLAY) makes the chip inside the iPod, and Sigmatel makes the chip in the iPod shuffle. Portal Player has a much higher PE. Insiders are selling in both companies, but $$ amount for both is not much in either case. Sigmatel is going after the low end market mostly Chinese manufacturers. Next week Sigmatel announces earnings. I expect they will be good. Engineering is done. They are turning the crank now. This isn�t the next Microsoft, but I think the market has more lasting power than conventional wisdom suggests. Very few people saw cellphones as the mass market it has become. 775 Million phones will be built this year. They also make the chips that enable flash memory USB devices as well as AC �97 codecs. All these are huge volume low margin chips that should be subject to serious competition. As their balance sheet looks good, they probably pay their bills at the FAB.

So what were the earnings? According to earnings.com, Q2 earnings were reported July 26th as $0.30 versus expected $0.31 and last year's $0.24. So up 25% on the year ago, but missed the estimate by a penny.

Gary writes (edited): The market believes the iPod phenomenon is nearing its end so they are cautious of their suppliers like SGTL and PLAY. If the mp3 market is going to replace the portable cassette/cd market, there is plenty of growth left. PLAY is still risky because they are dependant on AAPL. SGTL has a broad customer base.

My thoughts: SGTL is trading today at nearly $20. Book value is $6.34. P/E is 10. My Buffetology calculations show an estimated 5-year rate of return of 16.5%, which is good but not great. It's a solid stock, financially, but I have my doubts about their prospects. What is unique and good about their products? What are the barriers to entry in this market? Do they own significant intellectual property, or is it all standards-based? They hire out the chip fabrication. What's to stop any of the much larger semiconductor companies from muscling in if there are big profits to be made? All in all, the Pokeypine is neutral.

One interesting possibility is to do a spread: buy SGTL (forward P/E 13,35, P/S 2.29) and short PLAY (forward P/E 16.96, P/S 3.35). One should do an equal dollar amount of each. Assuming their prospects are similar, SGTL should rise relative to PLAY. SGTL closed today at $19.76, PLAY at $23.40.

Oil that is, black gold, Texas tea.

2005-06-21T22:44:00.000-07:00

So, where to invest? Stock market P/E is too high, the yield curve is flattening, Greenspan is raising rates, no obvious tech breakthroughs: it looks bearish. Bonds are risky when interest rates rise, maybe short term and money market are OK, but pay little. Real estate is showing signs of a bubble - half of new Calif. mortgages are no down, variable rate, interest only - a recipe for disaster if the market takes a dip or interest rates rise.

Oil stocks are promising. World oil production seems to have peaked. It's been years since discovery of a major field. OPEC is pumping all it can and still prices are rising. China and India are buying more and more cars, and building more and more roads. How high would gas have to go for Americans to cut back? Are you gonna ride the bus if gasoline hits $3? No? How about $4? Still no? I'm thinking maybe $8 gas would have an impact. What is now a $40 fill-up would become a $120 one. That might give folks pause.

But there's oil stocks and there's oil stocks. We need (non-gov't) ones with reserves, reserves in safe places where they won't be nationalized or taken in war. Let's have a look at some US oil companies.

Company	Reserves	Mkt Cap	$/Bbl	P/E
ExxonMobil (XOM)	12,623	$379B	$30	14
ChevronTex (CVX)	8,668	$123B	$14	9
ConocoPhillip (COP)	5,137	$81B	$16	9
Marathon (MRO)	720	$18B	$25	14
Amerada Hess (AHC)	782	$10B	$13	12
El Paso Energy (EP)	136	$7B	$51	N/A
Anadarko (APC)	1,131	$19B	$17	12
Devon (DVN)	636	$23B	$36	11
Unocal (UCL)	681	$18B	$26	13
Burlington (BR)	588	$21B	$36	13

Crude oil is currently selling for about $60/barrel, so all these companies are trading well below their oil asset value. These companies have other assets as well, such as natural gas, refining and retail. The four with oil reserves priced in the teens and low P/Es are: CVX, COP, AHC and APC. All operate globally. COP has a stake in LUKOIL, the Russian giant. Prices today: CVX $59, COP $59, AHC $107 and APC $82. I bought some APC and later sold it at a profit. Wish I'd kept it.

Vic Bremson: Some new investment strategies

2005-06-18T16:06:00.000-07:00

Dear family and Friends,

This is the latest in my searching for a good investment strategy in crazy times. I am changing some opinions about things.

I continue to rethink my concerns about the future and still have major misgivings about future interest rates. I am beginning to suspect that we are not having higher interest rates and inflation because there is the possibility that we are about to re-enter into a recession. My theory would go something like the following. I think Microsoft and Boeing will help the Seattle area.

Companies are not investing money into expansion in the United States or elsewhere. This is keeping pressure off of liquidity issues and are keeping interest rates down. It also means that possibly these companies do not expect the business expansion to continue.
Older people, are not investing in equities, they are struggling to find interest investments that will give them a living return. This is also keeping the cost down. They have tremendous wealth but don't know where to put it. The younger people are taking the risks. Real Estate still seems safer to people than other equities.
China and Japan continue to buy US paper and probably have to for some period of time. I think China will sooner or later have some serious problems which will put further recessionary problems on the rest of the world.
There is a body of opinion that I have been reading that suggests that China is building up a strategic inventory of oil and natural gas, just like us. This is putting at least short turn pressure on oil prices. I suspect that when oil prices begin to fall that natural gases will also fall.

My conclusions still take me to the following directions in my own investment strategies.

Stay with the big rich global companies that pay decent dividends. I continue to like the American Fund Capital Builder. It is a major piece of my investment strategy. I probably will buy more.
Stay out of junk bond funds. I believe they will get hurt especially if I am right about recession.
I continue to believe in health care, some energy-not over loaded and REITs. I think technology companies will not do great in a recession. I plan to look for a good fund that specializes in alternative energy companies as a long term play.
I would not invest in any emerging fund that has a major play in China. Their banking system is too weak. I think I will slightly increase my position in emerging funds.
I am moving towards preferring large consumer type companies over value stocks right now. Proctor and Gamble, Colgate, etc. I suspect that entertainment companies will also do fairly well. People won't give up their television.
All bond funds should be limited to 2 years or less. There is a good investment in US inflation bonds right now that will get you about 4%. A bond ladder makes little sense right now because of the yield curve.
Stay diversified and alert. Expect a major adjustment in the summer based upon reduced earnings reports.

I know the interest earnings will hurt on the high yield bond funds. I would rather go with REIT preferred that pay decent dividends.

What are your opinions?

DO NOT ACQUIRE ANY CREDIT CARD DEBT. NOT A GOOD TIME FOR THIS.

Victor

General Motors

2005-06-10T21:50:00.000-07:00

GM has been in the headlines lately, and not in a good way: announcing losses, credit downgrades and layoffs. A lot of their troubles hve been laid at the door of the United Auto Workers union, but I think this is mistaken. GM has invested much of their research money in pie-in-the-sky hydrogen power, parts division Delphi has had an accounting scandal and GM had to to pay Fiat $2B because of a put option. Much of their new design effort has been in the Cadillac division, and they are much improved but ugly as sin. All of these are management problems.

All the press is bad and everyone is down on the company: a good bullish sign for the contrarian. The valuation is shockingly low: trading well under book value. Their price/sales ratio is an eye-popping 0.09, meaning that the entire company is valued at only nine percent of a year's sales. Market cap is a measly $19B. Investor Kirk Kerkorian has snapped up 7% of the company - and he is usually a savvy investor. So from a value approach, the company is a buy.

To unlock the value, the company needs to be taken over and the current management tossed out. Cars, which have seen little technological change, are starting to evolve in a big way. More and more is computerized. Hyrid power plants and new high-efficiency electric motors may soon mean that the gas engine is just used to charge the batteries.

Here is my modest suggestion: Microsoft should buy a controlling interest in GM. MSFT have $37B in cash. Toss out the old-time management and put in some tech-savvy hotshots. Sure, there is a union contract to renegotiate, but I think that is doable if management gets their act together. GM closed this week at $34.51.

Apple does Intel

2005-06-06T17:34:00.000-07:00

Well, well, well - they finally did it - the x86 Mac. The Mac will be powered in future by the same Intel x86 (or AMD) chips that Windows PCs use. Apple CEO Steve Jobs said that their new hardware will not run Windows, and that Mac software will not run on a Dell, but surely some enterprising company will market a product that makes it so.

Apple have famously shot themselves in the foot with CPU choices over the years. First the 6502 chip on the Apple II was on the anemic side. Then the Lisa/Mac went with the 68000 breaking compatibility with Apple IIs. And then on to the PowerPC which is losing the performance race to x86.

I actually think this is a good move for Apple. Their stylish hardware will now be available for the many who would like to run Windows. Their stylish software will now run on computers that are more common than Apples. The Mac has always been a stylish luxury good, this will (IMHO) revive their market share in the computer industry. But I'd wait a quarter to buy - sales will be way off on the lame duck G5 models and the stock price should take a hit as a result.

AAPL closed today at $37.92. I'm suggesting that it will be lower after they report results 13-Oct-05 5:00 PM, and after that it may be a buy.

Victor Bremson: Investment Update

2005-01-31T16:38:00.000-08:00

I have written from time to time about my investment strategies for a very tough time. I have been catching up on my reading and analysis lately and this memo is a quick summary of some of things that I am learning. I hope that these comments are helpful to you regardless of the amount that you have to invest. I would love to hear your thoughts.

MAJOR WARNING ABOUT MY COMMENTS. There is no major consensus among writers as to the investment future for the next few years. I tend to be bearish and afraid of the US dollar. One of the prime people that I listen to takes the opposite tack. He says don�t bet against the dollar. When pressed why he says that it is more intuitive than anything else. He says that I am seeing the negatives in my country but not clearly seeing the balancing problems in the other countries such as China. Despite what I am going to say below I still follow his advise on some of my investments.

Here are my general conclusions: (I will partially expand later)

Be highly diversified. Try not to be invested in US stocks as the center of your strategy. Be active in both international and emerging economies equity and bond markets.
Stay away from 10 year government bonds , high yield bonds and bond funds that are highly leveraged. The inflation rate is rising faster than the price indices are telling us. Inflation is getting worse, especially for people with lower incomes or fixed pensions. This means interest rates could be going up quicker than we are being told. The fed will continue to raise rates. The only question is how fast.
Choose old economy stocks that pay reasonable dividends and that have good management. There are good mutual funds that specialize in these holdings.
Real Estate is usually a good hedge against inflation but there is also great risk here due to the high values in certain cities. I am still invested in Reits but I have begun to reduce my holdings.
Energy Companies. We are still running out of oil despite the fact that energy stocks have paid good returns the last few years. I have been looking at natural gas trusts in Canada, Oil Companies like BP that are continuing to diversify away from gas and alternative energy companies like Fuel Cell Energy and Gamesa.
Gold and Commodities. Both of these markets have high valuations right nowbut both will do well against inflation.

Some supporting comments:

INFLATION, US DOLLAR AND STAGLATION

The major inflation index does not include the inflation rate for energy or food. This means that it is tends to follow interest rates and the cost of imported products. Interest rates are artificially low right now because the fed wanted to hype the equity market in order to ensure that our equity markets didn�t collapse after the fall of the high-tech economy and 9/11. They are gradually trying to remove the artificiality from the rates. As far as I can tell the reason that rates have not gone up faster is because of slow job growth and slow employee wage growth in the US. Recent reports have indicated that people are slowly falling below the poverty line because of the lack of jobs and salary growth. The conventional wisdom is that the Bush tax cuts were also needed to keep the equity markets from falling further. There is much argument though about the need to make them permanent.

Low priced imports from China, India and other places has held inflation down and interest rates down. People are tending to be more careful with their money and checking prices very carefully. The problem is that this is leading to a massive trade deficit with China and others. They in turn are investing in our ten year bonds. This is good as long as they don�t stop or try to sell what they have already bought. This would cause disruption in our interest rates and they would go up quickly with inflation. The massive US budget deficits need to be reduced in order to reduce this risk. This is of course very difficult to accomplish.

The 100 pound monkey continues to be what is China going to do with its official currency. It is reportedly 40% undervalued. This means that we are paying 40% less for that item than we should be. This is leading to huge growth in China and ruin for businesses in the US. Consider this last fact when you hear an argument that says inflation is not that bad. No one knows for certain what will happen when China is forced to move to fix its currency. There is some soft evidence to suggest that China is preparing todo something.

The conventional wisdom is that the economy always does better the third year of a president�s term of office. Things are allowed to go down during the early part of the 4 year term so that they can be going up before the elections.

Stagflation is the worse economic result for most people. It means that prices go up and investment values/asset values go down. This might be good for the environment but terrible for those without a good job.

US and INTERNATIONAL EQUITIES�

Value stocks have led the charge in the last few years. Growth stocks and high-tech stocks have not done as well with high-tech being the worst. The conventional wisdom is that US Stocks are still selling at a very high earnings multiple, meaning that they are overvalued. People continue to invest in them because they have been told that equities make the best long-term investment. Warren Buffet buys great companies and never sells. He likes big, well managed, companies who pay good dividends. He buys at good prices.

Value investing is always a good way to invest. However it is getting harder to find good values. Consider investing now in large cap companies with good dividend rates. There are several mutual funds that do this. I like an American Fund product called Capital Income Builder because the fund invests about 40% of its investments in overseas multi-national companies thereby providing some diversification. There have been a rash of large mergers in the news lately. The reason for this is because many companies have huge cash reserves and they are looking to expand through purchase. Microsoft and Intel are too high tech companies with huge reserves. Microsoft recently paid a large special dividend and is actively buying a percentage of their stock back in the open market.

Europe will eventually have some of the same deficit/program deficits that the US is facing.

CASH INVESTMENTS

Cash investing doesn�t exactly mean cash. It doesn�t make sense to get on investment return if its possible. Short-term bond funds for example are a good place to invest excess cash. You will earn a small investment return and have very low risk. In the event that a major market investment opportunity takes place you will be prepared to take advantage of it. For example often there is a opportunity to take advantage of a market sell off. Short-term funds will easy to sell off in order to take advantage of the buying rebound.

Good luck. Let me know if you have any good ideas.

Victor Bremson

2004-09-28T22:47:00.000-07:00

My friend Victor Bremson offers the following investment advice today.

September 28, 2004

Investment Strategy for the new Millennium� (This is not political even if it sounds like it.)

Everyone trying to retire is looking for places to invest their money. Many of us would like to be socially responsible but it is becoming very hard. I was discussing this with my friend Mark today and he gave me some valuable insight that I would like to share.

It begins with the assumption that we are really running out of oil. Mark posits that this maybe the great secret behind the secretive Cheney energy task force. Most energy scientists believe this to be true. (do a Google search "running out of oil" for more background on this.) Americans will not take this message easily. They love their big cars and free energy spending. And before you ask why wouldn't the President try and prepare us for this--- remember that he and his family are real tight with big oil people. Consider the possibility that the Iraqi war isn�t really about terrorism or weapons of mass destruction or even getting rid of a lousy dictator. (If so what about Iran and most of the third world.) Consider the possibility that the Iraqi war is about ensuring that Americans protect their oil reserves in the Middle East. That would include Kuwait and Saudi Arabia by the way.

Add to this mix our huge deficit which in turn will lead to tremendous shortfalls in social security and other social programs. Read how easily it would be to ensure that trust fund lasts for a long time if the trust fund money is used to pay benefits and not deficits.

I believe this speaks to the following core to an investment portfolio:

Oil stocks including new oil technologies for extracting oil shale.
Defense contractors.

This of course will probably lead to stag-flation which is a combination of low job growth and low real incomes with high inflation. This suggests:

Avoid bonds of any kind until interest rates substantially increase. You will see a major erosion in your principle value.
Try to keep bond maturity dates to one year or less in the short term.
Obtain the highest possible mortgage at the lowest possible fixed rate. Right now they are available at no-cost 5 5/8% 30 years. The idea here is to pay off this mortgage with lower valued dollars after inflation takes over. The more serious the inflation the bigger the bonus.
Consider buying some real estate but stay leveraged.

Now this could lead to less free spending on the part of consumers. During the depression things like movies and beauty salons did very well. People needed some fun and comfort even when things got financially tough. And by the way there are many stories of people who actually enjoyed the depression. People didn't have to work so hard and had more time to get to know their community. But here are some depression ideas to add.

Internet/cable companies
Video games manufacturers
Movie related

You might want to consider some socially responsible funds to help you with your conscience. I am looking for instance for a fund that invests in alternative energy sources. But I will only put a small amount of my retirement portfolio into it.

Victor

2004-04-20T16:27:00.000-07:00

War Causes Inflation
This Salon article by James Galbraith, a professor of economics at the University of Texas, points out that war causes inflation, and we are in a war in Iraq. Whatever your thoughts about the war, this seems true, and not likely to end on June 30th. The evidence of inflation's return is all around us: higher prices for gasoline, housing, lumber - heck, even my CPA raised his price this year.

So my thinking today is: plan for inflation's impact on investments. Don't buy long term bonds or CDs, avoid companies that lend money in favor of those that borrow it. Loans will be easy to pay off with tomorrow's dollarettes.

2004-03-19T14:09:00.000-08:00

There's an excellent Economist article about the big 3 domestic automakers. The outlook is dire: between their debts, pension and healthcare liabilities, General Motors, (Daimler)Chrysler and especially Ford are on the verge of collapse. They have no free cash flow and their credit ratings teeter on the edge of junk.

Of course, the contrarian will take this as a buying opportunity. Their stock prices are low and going lower. They have a lot of money pass through their hands and if an enterprising CEO found a way to funnel that to some other business (one thinks of GM Hughes), it might work out well.

2004-03-17T17:29:00.000-08:00

The Pokeypine is pretty bearish on the next ten years because of the following factors:

Baby boomers retire. Fewer workers, more elders to support and they haven't saved much, so won't have much to spend.
PC/Internet boom has run its course. I've made money investing in this for a quarter of a century, but where are the gains now? Biotech and healthcare look promising, but have disappointed so many times. Nanotech is too far in the future.
World oil production peaking sometime between 2005 and 2045 means higher oil prices, job loss and recession.
Interest rates are low now and may stay low for years (like Japan) but must inevitably rise. This will hurt business, the stock market and consumers. Home prices may fall, especially in places like California where buyers are forced to go with adjustable rate mortgages to be able to afford a home at all.

So where to invest?

The March 15, 2004 edition of Barron's has a couple of interesting articles. One suggests that a rise in oil prices will especially favor oil production companies, ones that aren't integrated with refining, retail, etc. They have oil in the ground which will become more valuable. Specific companies named are Devon Energy, Apache and Anadarko Petroleum. Oil service companies such as Schlumberger will also benefit. But the production companies are attractively priced with low P/E and decent dividends.

Another article extols Citigroup, the largest financial services company. It has a P/E of about 12, pays a 3.3% dividend, and may have 10% growth this year. A good, conservative investment. Of course, it's a bank and banks fared poorly in the stagflation of the 1970s (as noted earlier), but perhaps they have learned from that era and are less vulnerable now.

Tickers and current prices: DVN 58, APA 42, APC 52, SLB 64, C 50.

As to fixed income, intermediate and long-term bonds are very risky right now, as they will drop when interest rates rise. Money market funds are also looking unattractive as they pay hardly anything. That leaves short-term bonds as the best bet in this area.