Taking Stock

Good old days again?

2009-07-16T07:13:00.000-07:00

Goldman Sachs (GS) had a blowout earnings report this week and the Dow finally made it above 8,500 Wednesday in a nice 200-point-plus rally.

The Wall Street Journal on Thursday carried a story about how finance executives were again getting paid astronomical bonuses to deliver returns to their firms.

Could it be that happy days are here again? Possibly.

China is also showing signs that its slowdown is on the mend. That could be a good thing in terms of exports and commodities.

We'll have to see how things unfold in coming weeks.

Brian.

Rational or not, market is hanging in there

2009-07-01T09:51:00.000-07:00

We've been around that 8,500 range in the Dow for some time now and have been getting some initial signs that the downturn might be stabilizing.

The National Association of Realtors announced this week that pending home sales were up again for the fourth consecutive month.

The Institute for Supply Management Index, which surveys purchasing managers at manufacturing firms, also showed resilience and slower contraction, according to MarketWatch. The index had the most favorable reading since last August.

We've been bouncing up and down in the 8,400-8,500 range since at least early May - another indicator that may point to some levelness and possible upward movement in the future.

But a few favorable numbers aren't enough to support full conviction, those in the bear camp say. In other words, proceed with caution.

Brian.

What a tangled Web

2009-06-26T11:32:00.000-07:00

Regulations on the horizon that focus on how Internet retailers gather information from consumers have caused trade groups to try to beat rule-makers to the punch.

Don't be surprised to soon see an icon on certain Web pages notifying you that your activity is being tracked, according to a recent piece in the Wall Street Journal. When clicked, the icon would tell you what information the retailer gathers and which companies it shares the information with, according to the article.

Sites could also include a feature to allow Web surfers to decline having their information gathered. If I were designing the feature I would call it the "no-brainer" button.

Not suprisingly, one ad agency managing director told the Journal that limiting access to consumers' information would make it less likely that a marketer "can provide more timely, relevant and targeted ads to consumers."

I guess that's up to you, the consumer, whether that's a good or bad thing. I know what way I'll be clicking.

Brian.

Here's hoping these signs of life aren't elusive

2009-06-24T07:29:00.000-07:00

Market watchers got a boost today with the release of durable goods data.

The data revealed that orders for durable goods - things like appliances, cars, and business equipment - rose 1.8 percent in the month of May. Stocks gained on the news after faltering the past few days.

But that doesn't mean happy days are here again.

Joe Keating, chief investment officer at RBC Bank, issued some bullet points about positives and negatives in the current environment. Here's a sampling:

The pace of single-family housing starts rose 7.5% to an annual rate of 401,000 in May, following readings of 373,000 in April, 361,000 in March and 357,000 in February and January.
The stability, and even a modest upward trend, in single-family housing starts since February point to the more than three-year slide in single-family home construction coming to an end. While we expect that a bottom in home building has been reached, a sustained rebound will likely not take hold until next spring due to the huge supply of existing homes still for sale, the record wave of mortgage foreclosures which is dumping more unsold homes on the market, the rise in mortgage rates since mid-March, which is cutting into affordability and the ongoing efforts by employers to cut jobs.
Industrial production fell -1.1% m/m in May after dropping -0.7% in April as the recession continues to hold back demand for manufactured goods, including automobiles, machinery and household appliances. The ongoing decline in industrial production -13.5% over the past year - is a sober reminder that even if the now 18-month-old recession is leveling out, it has not ended, and a return to a self-sustaining and self-reinforcing economic recovery is unlikely for a number of months.

Keating also said that consumer prices hardly rose in May, meaning that inflation is being kept in check.

Brian.

Steady as she goes

2009-05-22T12:19:00.000-07:00

Everything's looking pretty good in the market lately.

That 8,000 level in the Dow has held strong and it seems like some individual stocks are continuing their upward trajectory.

I'm still staying right where I am.

But that doesn't mean you should.

If you've got the guts (like the ones I lack) then there are probably some really decent values in stocks right now. And if you use dollar-cost averaging, your are probably already taking advantage of some of the lowest stock prices we've seen in a long time.

But I still have too much of a sense that we're not out of the woods yet. And that keeps me on the sidelines.

Happy investing.

Brian.

This rally has legs

2009-05-06T13:59:00.000-07:00

Don't want to jinx it, but Wednesday saw another nice close and had the Dow holding steady at around the 8,500 level.

Part of the buoyancy was attribted to a better-than-expected jobs report from payroll administrator Automatic Data Processing.

The report showed that non-farm payrolls fell 491,000 in April, the smallest jobless decline in six months.

There are still many barriers to overcome and some have suggested we're seeing nothing more than a bear market rally, albeit a healthy one.

Buy-and-holders will shrug off any such analysis, but active traders may want to stay alert.

Brian

Nice close today. Is the rally for real?

2009-05-04T13:30:00.000-07:00

The market's been trending up, up, up.

Somehow, despite all the lack of confidence about the bank stress tests and the swine flu, the Dow Jones closed up 214 points, to 8,427.

That's quite a bit above the low of 6,594 we saw in March - a nearly 28 percent gain in fact.

I admittedly snoozed while it passed me by.

But is this rally going to stick for awhile?

That's anybody's guess, but some have suggested that if you missed this spike, it may already be getting ready to fizzle.

I guess we'll just have to see.

Brian.

Some bright spots among earnings

2009-04-26T20:39:00.000-07:00

It’s earnings season, and everyone knew most companies were going to report lackluster figures.

But there were a couple of exceptions this past week.

Amazon (AMZN), the online retailer, posted a first-quarter profit that beat expectations.
The company’s sales jumped 18 percent to $4.89 billion, and its net income jumped 24 percent to $177 million.

Amazon CEO Jeff Bezos said the company benefited from consumers shifting more and more to online shopping, the Wall Street Journal reported.

The company has also increasingly been bringing outside merchants on to Amazon’s site to sell goods like jewelry, Bezos said.

The report was cause for celebration, but Amazon officials expressed caution for coming quarters due to the continuing recession.

Netflix (NFLX), the DVDs-by-mail and online movie rental company, also brought good news to the mostly lackluster earnings season.

The Los Gatos, Calif., company said its subscriptions had jumped by 920,000 during the quarter.

"More budget-conscious Americans are embracing low-cost movie rentals over higher-priced theater tickets," reported Investor’s Business Daily.

So there are a couple of bright spots amid the earnings carnage.

Microsoft (MSFT), however, was not so lucky. The software giant’s profit fell 32 percent, and sales of Windows software declined 16 percent from a year earlier.

As for me, I’m still playing it safe. Even though it looks like some things are improving and the market is showing some stability — at least hanging in at the 8,000 level in the Dow — there are still plenty of reasons to be cautious.

Global growth has slowed, and the International Monetary Fund recently projected that the downturn will continue in all countries as surpluses of various goods continue to pile up.

The Wall Street Journal reported this week that small-business owners are not taking salaries in an effort to help them stay afloat.

An American Express survey showed that 30 percent of 727 small-business owners and managers were not taking salaries. The Journal called that a troubling sign, because small businesses have created a significant share of U.S. jobs in recent years.

If more jobs continue to be lost, the market can only go one way — down. Let’s hope that a turnaround is in the making.

As for me, again, I’m too scared to tread in yet.

Brian

Dollar-cost averaging may make sense

2009-03-22T20:38:00.000-07:00

I’m struggling with what to write about this week because everything still seems so uncertain.

The market has shown some signs of resilience recently, but I’m still skeptical.

Some investment firms like Zack’s Research are suggesting a gradual allocation into stocks, even while the jury is still out on when we can expect the market to rebound.

Zack’s gives the example of a person with $30,000 to invest in the market.

That person should incrementally add to his or her positions in $5,000 or $10,000 increments, according to the research firm. The dollar-cost averaging approach makes sense, according to

Zack’s, because no one can accurately predict the bottom.

By dollar-cost averaging, one has a better chance of taking a position that will put one on better footing once the market returns to its full glory, according to the research firm.

I currently dollar-cost average with a Vanguard account that has a total stock market index fund and two international funds.

Each month a certain amount is drawn from my bank account and deposited into Vanguard.

Yes, even though I’m guilty of market timing in the account I typically trade in, I do still believe in making regular contributions to a retirement account.

Granted, that retirement account has been cut in half since the market began its downward spiral more than a year ago. But I’m still picking up shares at cheaper prices and I have no doubt that when the market returns to normal I’ll be sitting pretty.

Credit cards to implode next?

Meredith Whitney, the woman known for predicting the recent banking crisis and the CEO of Meredith Whitney Advisory Group LLC, is now forecasting another looming crisis ahead of us.

In a recent editorial in The Wall Street Journal, Whitney discussed how credit cards will likely be the next credit crunch in the United States.

She predicts that more than $2 trillion of credit-card lines will be cut in 2009 and $2.7 trillion by the end of 2010.

"Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy," Whitney wrote in the Journal.
"Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57 percent contraction in credit-card lines."

Whitney acknowledges in the piece that credit was given away to freely in recent years.

But, "If credit is taken away from what otherwise is an able borrower, that borrower’s financial position weakens considerably," she writes. "With two-thirds of the U.S. economy dependant upon consumer spending, we should tread carefully and act collectively.

Indeed.

Brian

Don’t be fooled by one good week

2009-03-15T20:31:00.000-07:00

A couple of really good days in the market this past week brought more speculation that we were finally at the bottom.

Don’t buy it. At least not yet.

True, the Dow did close up nearly 600 points on the week — a 9 percent gain.

But we’ve seen this kind of action before, only to have it followed by the opposite action.

“This is probably a bear-market rally, but we’ll accept it for what it is,” Steven Roge, a portfolio manager with R.W. Roge & Co., told the Wall Street Journal.

Roge said he expects the S&P 500, now at the 750 level, to fall to about 600.

Of course, one never knows what fuels such predictions. Could it be Roge has short positions he wants to continue to take advantage of in a downward moving market? Is he just guessing?

It’s hard to know.

But he’s not alone in his opinion that a couple of decent up days do not necessarily translate to the bottom being reached.

However, it’s probably not a bad time to start eying some stocks that show promise upon recovery.

James B. Stewart, who writes a similar column to this (although for a much bigger paper, The Wall Street Journal), has started accumulating some stocks recently and has, in fact, been nibbling at stocks during much of the downturn that began in December of 2007.

Some of the stocks Stewart likes at their current levels are General Electric (GE), Quality Systems (QSII), a health care stock and retailer Buckle (BKE).

Stewart also bought General Mills (GIS) and Amazon (AMZN).

Summing up his convictions, Stewart wrote: “The market experienced a rare rally Tuesday, which naturally comes as a relief. But even before this, I felt good about buying these stocks. After years of practice, maybe I’m getting my emotions into line with my rational conviction.

“Which is, to echo the president, that this is a great opportunity to buy, no matter where the market goes in the next weeks or months.”

That got me thinking.

Maybe it’s time to quit sitting out after all.

Nah. I think I’ll stay where I am.

I need some more convincing.

But I do hope that maybe last week did bring about a turning point and we can get back to the business of making money again.

Brian

Numbers keep market in a plunge

2009-03-08T20:31:00.000-07:00

I knew this past week was going to be bad, but I didn’t know how bad.
The nation’s jobless rate hit 8 percent, the highest level in 26 years, which served to place the Dow in 6,000 territory.

Locally, Manatee County’s jobless rate hit the 10.1 percent level. It was in the 2.9 percent range when I started working here just under three years ago.

And experts say the nation’s unemployment picture is going to get worse before it gets better.

That doesn’t bode well for stocks, and the market as a whole.

Last year, people were predicting the Dow would fall to 5,000. Myself and others thought this was ludicrous and representative of the sky-is-falling mentality.

Now, it doesn’t seem so far-fetched.

According to one market expert, 5,000 in the Dow might be wishful thinking.

Peter Eliades, who runs the Stock Market Cycles investor newsletter, was recently interviewed by MarketWatch about his thoughts on where the market is heading.

Eliades predicted that the Dow may actually fall to the 4,000 level in the near-term, and offered little in the way of optimism for investors.

In fact, he recommended that investors take advantage of any future rallies to lighten up on stock positions. He believes that any rally in the near future will be a bear market rally.

Asked where investors might find opportunity, Eliades told MarketWatch that gold has the potential to be a sound long-term investment and may reach $2,000 an ounce.

"But gold is not a place for the average investor to be, because it’s too volatile," he added.

Fear in the air

As for me, I’m scared to death to invest in anything at the moment. And with the market’s action of late, I’m apparently not alone.

All the experts say this is exactly the time when stocks make sense — essentially, when the fear is palpable and "blood is in the streets."

But this fear has been going on for some time, all the way back to December 2007 when this recession supposedly began.

Since then, 4.4 million jobs have been lost and the headlines in The Wall Street Journal continue to carry descriptors like "worst," "lowest," "bad" and "horrible."

Yes, the best buys are to be had when others have sold everything and are too scared to reenter the market.

But knowing when that time has truly arrived is next than impossible to determine.

So I remain on the sidelines.

Hopefully when the true rally arrives, it doesn’t pass me by.

Brian

Next stop: 6,000 on the Dow?

2009-03-01T20:37:00.000-08:00

We came precariously close this past week of edging down below the 7,000 mark in the Dow.

In fact, a mere 64 points separated us from 6,999 in the Dow at the market close Friday.

The government’s announcement that it was taking an even bigger stake in Citigroup (C), General Motors’ (GM) $30.9 billion loss for the year and continued bad news about manufacturing and consumer spending have all served to keep any attempts at gains in full check.

Data on deck for this week may make that plunge into 6,000 territory a certainty.

Economists surveyed by MarketWatch believe that Labor Department data to be reported this Friday is going to show more than 30,000 jobs lost in February than January.

Those economists expect payrolls have fallen by 630,000 in February and the national unemployment rate will increase from 7.6 to 7.9 percent, according to MarketWatch.

"With total revenue declining at its worst pace since the late 1950s, many businesses and governments are in survival mode and have no choice but to cut jobs," Wachovia economists said in the article.

Meanwhile, the market will be watching the outcome of the government’s "stress test" being conducted on the nation’s banks.

Basically, the test involves seeing how the nation’s biggest banks would hold up under the theoretical scenarios of unemployment climbing to 10 percent and home values falling another 25 percent (that may not be so far-fetched).

The government sees this as a way to accurately gauge whether or not nationalizing of certain banks is needed.

Banks that failed the test would have up to six months to address any capitalization or other problems.

But critics are already knocking the test, questioning its ability to actually predict how certain banks will fare if conditions continue to deteriorate.

And investors don’t want to see nationalization, for fear that the government’s ownership of a certain institution will turn into a protracted affair that would dilute shareholder equity.

It should be interesting to watch all of this unfold, but you may want to turn off the financial news on TV this week. It’s probably going to be a bumpy ride.

Brian

Market sinks like an anchor

2009-02-22T20:57:00.000-08:00

I’m fond of telling people that I bought Bank of America (BAC) about a year and a half ago at $52 a share when it was supposedly "cheap."

Its price-to-earnings ratio was around 9 and it paid a respectable dividend.

Well, as the banking crisis continued to unfold, Bank of America’s price continued to slide, and because I was adhering steadfastly to my rule of selling any stock at an 8 percent loss, I cut my losses before serious damage was done.

But as I stared at the ticker on CNBC this past Friday, I was shocked to see Bank of America trading for 3 bucks and change. Holy cow, I remarked to my wife.

"Some people are going to make a killing," she said, referring to those with lots of cash on the sidelines to pour into beaten down stocks.

But I believe that any speculation on devalued stocks at this point is nothing short of gambling.
In fact, Jason Zweig of The Wall Street wrote over the weekend about the perils of playing what he called "lottery stocks" — stocks that have fallen so far in price that investors desperate to make up for recent losses pile into them in hopes of winning the big one.

"Like a Powerball ticket, these stocks cost almost nothing and offer a high chance of losing," Zweig writes, "but that still leaves them with a kicker of hope, because if they do ever win, they could win big."

Zweig spoke with a finance professor at the University of Texas at Austin who has done research that shows people load up on these lottery stocks most during economic downturns.

Every once in a while a lottery stock will win big, the professor said, but more often than not it won’t.

Nationalize the banks?

The weekend Wall Street Journal carried an interesting interview with Nouriel Roubini, a professor at New York University’s Stern Business School.

What was interesting about the interview is that Roubini is in favor of what the prevailing market sentiment seems to be against: nationalizing the banks.

Do it, Roubini says, otherwise we’ll perpetuate the ongoing banking crisis for much longer.

Roubini says that even banks that look solvent today are probably going to start looking insolvent six months from now.

He says it doesn’t make sense to pour huge sums of money into soon-to-be-insolvent banks in order for them to take over banks already insolvent.

"It doesn’t work!" Roubini told the Journal. "You can’t take two zombie banks, put them together, and make a strong bank. It’s like having two drunks trying to keep each other standing."

Roubini advocates a temporary taking over of the banks by the government for restructuring and eventual placement back with private ownership. If nationalization is a dirty word, then call it "temporary receivership" he says.

What do you think? I’d like to know.

Brian

Wake me when the market improves

2009-02-15T20:26:00.000-08:00

So much for that rally.

It looked like the indexes were gaining ground and holding at the 8,000 level in the Dow during the last week or two.

But that all fell apart at the end of the week. One shouldn’t expect it to get any better this week, either.

There is a raft of economic data on deck and economists are pretty much expecting it all to be miserable.

As a Sunday MarketWatch article began: "You know things are bad when the best economic news over the coming week is likely to be a report showing that consumers paid higher prices for goods and services."

Housing, manufacturing and layoff data is expected to all be bad.

However, there may be a silver lining.

President Obama is expected mid-week to outline plans to forestall more foreclosures in the nation, which are decimating the country’s wealth and consumers’ spending power.

No doubt, economists and those who play the market will be watching this development carefully, and if enough confidence is deciphered from Obama’s words, it might not be the bloody week in the markets that it is shaping up to be.

As for me, I’m closing my eyes to it all for awhile. And I have to admit, it feels pretty good.

Brian

Market showing stability, but do you bite?

2009-02-08T20:46:00.000-08:00

A funny thing’s been happening over the course of the past week or two.

Despite mounting layoffs and dismal earnings data, some badly beaten-down stocks are starting to show some resiliency and improvement.

I’m thinking here of Mosaic (MOS) and Apple (AAPL), just to name a couple.

Nothing seems to explain the fact that Mosaic, which had fallen from the $40s to the $27 range in December, charged back to above $45 during the past week.

Apple, which had taken a drubbing for more rumors about its CEO Steve Jobs’ health and was clinging to the 80s, finished Friday just below $100 a share.

Raise a glass to the buy-and-holders. If I had stayed in either one of those stocks I would have been back in the money.

But I didn’t and I’m not.

It seemed like old times watching Jim Cramer on "Mad Money" on Friday, too.

He seemed to be emboldened and working with a new energy as his sound effects panel shouted, "Buy, buy, buy!"

But should you?

The market has, indeed, been showing some resiliency. Each time the Dow has dipped below 8,000 it seems to fight its way right back up.

Friday’s 217-point rally in the Dow put the index firmly back at the 8,200 level.

But there is still a preponderance of bad news out there.

The nation’s unemployment rate edged up again to 7.6 percent and it’s actually news these days if a company isn’t announcing any layoffs.

This past week The Wall Street Journal reported that retailers, slammed by the recession and the associated lack of consumer spending, had stopped making earnings forecasts about upcoming quarters because their projections are too predictable, given the bloodshed that is almost sure to continue.

So why is the market moving up — or at least stabilizing?

Investor’s Business Daily took a stab at an explanation over the weekend in an editorial titled "A Tale of Two Indicators — Jobs and Stocks," penned by CNBC personality and economist Lawrence Kudlow.

In it Kudlow writes of the widely held belief that the stock market is a forward-looking beast, while economic data view things in the rear-view mirror.

"So stocks may now be telling us that the gloom-and-doom crowd — and its pessimistic economic prognostications that cover all of 2009 and in some cases 2010 — is about to be proven wrong," Kudlow writes.

Kudlow theorizes that cheaper energy, the creation of new money and current financial system rescue initiatives could bode well for a pleasantly surprising 2009.

Then again, Kudlow has always fallen on the side of optimism.

As for me, I’m encouraged, but I want to see this faint light at the end of the tunnel shine on for more than just a couple of weeks before I wade back in to the market.

Brian

More bad news sinks stocks

2009-02-01T20:21:00.000-08:00

More bad news came our way this week in terms of the economy.

Fourth-quarter gross domestic product fell 3.8 percent, making for the worst showing since 1982 and a blow to any hopes that 2009 is going to be coming up roses.

President Barack Obama said the poor economic news was another reason that it’s important an economic stimulus package is passed quickly.

The Dow Jones Industrial Average had been working to climb off that 7,900 level, but after the lackluster GDP news, it closed Friday right at 8,000 — far from the 14,100 record level set in October of 2007.

According to the Wall Street Journal, last month was the worst January the Dow Jones every experienced in its 113-year history.

It lost 8.84 percent for the month and saw its fifth consecutive month of declines, the newspaper reported.

"Smart investors are sitting on the sidelines," David Henderson, president of Raven Securities, told the Journal. "There’s not much conviction one way or the other."

More and more ads are showing up on TV appealing to the frugal side of us consumers.

Whether it’s the woman in the grocery store sawing every item in half for affordability’s sake (except the Velveeta) or Wal-Mart telling us how much we can save by eating frozen dinners rather than going out, the prevailing consciousness is saving money at the moment.

And that’s not good for stocks.

Despite the recent rottenness, Investor’s Business Daily still put a border around one of its stock charts this week, signifying the newspaper believes the stock might be a good buy right now.

That stock is Gilead Sciences (GILD), a company that makes therapies and treatments for HIV and other viral diseases.

Gilead has a three-year earnings-per-share growth rate of 35 percent and a three-year sales growth rate of 38 percent, according to IBD.

The company is also about to benefit from China introducing its Viread HIV drug to patients in that country.

Back when things were rocking along, a given edition of IBD might have seven or eight stocks highlighted each day as possible buys.

But with the state of the market, it’s not surprising that there is only one.

There was some brighter news on the retail front this week.Amazon.com (AMZN) saw its profit rise 9 percent in the fourth quarter. Sales grew 18 percent during the same period. The results from the online retailer beat expectations by Wall Street.

But the company has a lot of lost ground to make up.

Amazon’s year high was $91.75. Currently, it’s trading in the $58 range.

Brian

Range trading may be idea worth considering

2009-01-25T20:55:00.000-08:00

We keep tip-toeing around the lows of 7,400 or so in the Dow we hit in November.
It seems like, out of the gate anyway, that Obama effect many were looking for has been a no-show.

Layoffs continue at a break-neck pace and the consumer is tired and broke.

Bottom line: It’s a long way up and it may also be a long way down.

But there may be opportunities there for the more astute and gutsy of investors out there.

Those opportunities come in the form of trading in a range.

The current market’s oscillation between the high 7,000 range and the upper 8,000 range lends itself to investing in stocks that are exhibiting the same action.

In other words, if you spend a little time watching a particular stock or two, you’ll get hints about how their price action follows that of the overall market.

Over time, you’ll find a range in which those stocks are trading.

Buy in when the stock is at the bottom of its range and sell when it gets near the top.

Sounds simple enough, you say.

But it’s not. In fact, it can be a little challenging — and nerve-wracking — figuring out when to buy in at the right time and how to sell before it falls again.

Apple (AAPL) and Dryships (DRYS) both seem to be good candidates for this strategy.

Apple’s been oscillating between the 80s and high 90s since October, a peek at its chart on Bigcharts.com shows.

Its track record has been pretty decent and could make a good range-trading play — if that is, something sensational like CEO Steve Jobs’ recent leave of absence for health reasons doesn’t beat the price down even more.

Dryships also had a tradeable bounce in the last few weeks, going from about $9 a share to around the $14 range.

Even after taxes on a short-term trade, that 5 points wouldn’t be anything to sneeze at.

Is this investing? No. Is it more akin to gambling? Absolutely.

But with the market in the state it’s in, buy and hold is obviously not working.

Unless, of course, you’re buy-and-holding cash or CDs.

Fishkind says more pain ahead

Henry Fishkind, a noted Florida economist, was in town last week to give his annual Economic Forecast Breakfast, sponsored by Whitney Bank and the Manatee Economic Development Council.

His message?

More tough times ahead.

Fishkind predicted that economic output and the housing market won’t start showing signs of life until at least the latter part of this year and a full recovery shouldn’t be expected until 2011 or 2012.

But Fishkind also said that the recent stimulus programs from the government, and the others to come, should ensure we get back on solid footing.

Let’s hope so.

Brian

Sounds too good to be true? Run.

2009-01-18T20:52:00.000-08:00

We’re all guilty at some time or another of greed.

Whether it’s rushing in for that last slice of pizza — knowing that you could do without it and the others in the room have had less — or, say, plunking a bunch of your hard-earned money into a hedge fund promising stellar returns and market-beating performance.

That’s apparently what happened to investors who committed millions of dollars to a hedge fund run by Sarasotan Arthur G. Nadel.

According to various local news reports, Nadel has vanished, along with about $350 million in funds investors placed with his hedge fund.

In times like these, especially, when most CDs are earning a paltry 1 percent or 2 percent, and stocks — well, let’s not go there — it’s easy to lose sight of logic and walk zombie-like into the clutches of that banner ad touting 10 percent, super-safe CDs, or a guy who can guarantee market-beating returns, no matter what.

To be fair, Nadel has not been charged with a crime.

And the fact that, as reported, his car was found at the Sarasota-Bradenton International Airport, may not necessarily be a bad thing.

Maybe he had to fly somewhere to straighten out the investments for his clients — you know, meet with his people, or his people’s people.

Then again, maybe he flew the coop and investors are left holding the bag.

The incident immediately began drawing comparisons to Bernard Madoff, the New York hedge fund manager who is accused of ripping off investors to the tune of $50 billion in a Ponzi scheme that funded returns from existing investors by taking money from new investors.

Eventually the well runs dry.

Rene-Thierry Magon de la Villehuchet lost more than $1 billion to Madoff’s scheme.

He also disappeared — with the help of sleeping pills and a box cutter he used to slash his wrists.

Point is, there are no sure-things. There are no safe investments that are going to produce spectacular returns consistently.

I learned this firsthand last year, when I was lured to auction-rate securities.

These vehicles — which were essentially short-term debt and commercial paper that reset after being sold at auctions every seven or so days — were touted as being safe as cash and just like a CD, except liquid.

I didn’t have to commit to six months or a year, and I was earning 5 percent, or even more, on my money.

What more could one ask for? The market was beginning its rapid descent, and I thought I had found myself the equivalent of buried treasure.

Why didn’t more people think of using these things?

Then came the bad news: The demand for the auction-rate securities dried up and people — including myself — saw their funds being frozen, unable to redeem their shares.

Luckily, I was able to get out and recoup my funds, but some investors have had to resort to extensive litigation that continues today.

So if it sounds too good to be true, it probably is. Sometimes there is no substitute for time and patience.

And Nadel, wherever you are, some people want to ask you some questions.

Brian.

No way to soften blow of really bad year

2009-01-11T21:00:00.000-08:00

This has been a bear of a year.

I thought I had it all figured out.

Thought I was pretty smart, actually.

I was bobbing and weaving, buying and selling — sticking to a system that had me cutting my losses early before they escalated and taking a profit at the right time before the love for a stock died.

I rode Apple (AAPL) like a hobby horse, riding it up, taking my profit, then buying it back on the dip to squeeze a little more out of it on the next climb.

I enjoyed quick profits on under-the-radar stocks like Enersys (ENS) and Atwood Oceanics (ATW).

I was up more than 10 percent in my portfolio and gloated when I got my brokerage statement that showed a graph of my performance versus the common benchmarks — my performance being far superior.

Then, all of that came to an end.

As I’ve written before, I finished the year down 10 percent, closed my fee-based trading account and stuck my money in a CD.

Others have fared much worse, losing half or more of their retirement savings with no clear sign of a rebound in sight.

Buy-and-holders like John Bogle, founder of Vanguard investments, say now is no time to cash out of the market.

Doing so means you are guaranteed to be saddled with your losses, they say.
But hanging on to your stocks with what increasingly seems blind faith can be hard to do.

There are some things pointing to a recovery.

The fact that the major indexes have already plunged more than 40 percent is actually a good thing in some people’s minds.

It means that a lot of the major selling has already taken place and stocks may be at prices more indicative of their fundamental values.

As price-to-earnings ratios get lower and lower, investors have more reason to believe that share prices will hold up as the bottom is reached and we emerge from this nasty downturn.

Although there are plenty who say the market could fall much farther at this point, their are an equal number of investment professionals who are seeing dollar signs in some downtrodden stocks.

There is another reason to take heart: The market only goes one way over time — up.

That was poignantly illustrated for me by an American Funds chart a reader sent me a while back, out of his annoyance at my market-timing view.

The color chart included presidents all the way back to the Great Depression. Through wars and recessions. Through every imaginable catastrophe, including 9/11, stocks continued their steady climb.

A 40 percent drop seems like staring into a giant abyss. But on that chart, assuming it’s printed again in 10 or 20 years, our current market chaos will appear as a mere blip.

Sometimes it pays to step back and take a larger view.

Here’s hoping that 2009 gets us back on that upward march again.

Brian

Living between two fears

2009-01-04T21:03:00.000-08:00

This past Friday was a pretty nice little rally.

True, the volume of buying wasn’t that great, given the fact that it was at the end of the holidays. But the Dow’s jump of 258 points on Friday was nothing to sneeze at given the mostly flat, go-nowhere activity we’ve seen in recent weeks.

And that scares me.

It scares me because I know that the market’s been decimated more than 40 percent, and a decent surge like that after all the flatness we’ve seen could signal that people are ready to step back in again.

It scares me because I know that the money I have locked up in a CD that would have been allocated for stocks will make nothing even close to what it would in a decent bull rally off a market bottom, even if it did turn out to be one of those short-term cyclical rallies.

For instance, when I wrote about Dryships (DRYS) in my column last Monday, it was at about $9 a share. It closed on Friday at $12.49. That would have been money already made, and probably more to come if the bullish sentiment holds.

But that’s a big “if,” and plenty of other stocks that I actually owned are at or below the point where I sold them before getting completely out of the market several weeks ago.

And that also scares me.

People have been heralding the bottom for months now. They did it when the Dow was at 11,000. They did it when the Dow fell below 10,000. They did it — well, you get the idea.

True, no one — not even the best of them — can accurately predict a precise market bottom.

But there’s no reason to ride stocks down another 40 percent or 50 percent as one local economist predicts.

Rodney Johnson, president of H.S. Dent investments in Tampa, told the St. Petersburg Times that he thinks the Dow will peak between 9,600 and 10,000 during 2009, but will fall again, leading to a true and deep bottom in 2012.

How low will it go?

To between 3,800 and 4,500, Johnson predicts.

Yikes.

Of course, Johnson was in the minority of the other investment experts the Times interviewed.

Their predictions were more optimistic, yet still guarded in terms of how much of a climb we might expect to see this year.

Will I enter the stock market again this year?

Probably.

Will I be faked out by what appears to be a decent rally and lose money?

I’d put those chances at about 50-50.

Am I enjoying some relaxation and better sleep knowing that my money is in an old-fashioned CD instead of worrying about what bit of misguided news or some analyst’s comment will do to the share price of a stock I own?

Absolutely.

But if I see another couple of days like Friday this week, I might start losing sleep for a different reason.

Brian

Where is this economy going?

2008-12-28T20:57:00.000-08:00

I caught Wilbur Ross on CNBC a week or so ago and got a kick out of the way the noted investor phrased the matter of what it is, exactly, we’re going to make in this country to grow our economy and climb out of the hole we’re in.

"We can’t just flip hamburgers, sue people and trade stocks," said Ross, chairman and CEO of W.L. Ross & Co.

True that.

With the big three automakers in the tank and the housing market on hold indefinitely, Ross made a good point.

President-elect Barack Obama has pledged a new New Deal program that would pump billions into the building of infrastructure and roads, employing thousands along the way.

But for how long?

How many more iPhones, flat-screens and video games can the world buy and still keep the world economies afloat?

Ross’s response came in defense of his remark that a sagging dollar had recently held promise of lifting U.S. exports.

Squawk Box host Carl Quintanilla tried to make the point that we shouldn’t care too much about manufacturing because we don’t have much of it.

Ross suggested we’d better start getting some.

Some think green will be the answer.

They maintain that a bustling economy built on dismantling our dirty industries and making energy from sources like wind and solar power will put people back to work and make for a healthier planet.

Of course, there’s the alternative solution as laid out in a Wall Street Journal editorial last week: Spend like a madman on defense.

So there you have it. The problem is solved. We can either clean up the planet or blow it up.

Either one, it seems, will get this economy rolling again.

Stock watch

I’m about as interested in buying stock at this point as I am banging my head repeatedly into a brick wall.

But I am watching, keeping my eyes open for when the market does pick back up and it seems safe to tread back in.

One of the stocks I’ve been watching is Dryships (DRYS).

I’ve written about it before, back in the good old days when the market, overall, was moving in the opposite direction that it has lately.

Dryships was a high-flyer, and the shipping stock had hit a high of $116 a share back in the spring before breaking out the life rafts and coming to a rest on the sea bottom of $3 a share.

Quite a plunge, indeed.

But the stock has shown signs of recovery lately.

Dryships recently edged up into the $11 or $12 range before pulling back to around $9.

But a lot of buying volume came into the stock this month. Shipping stocks were holding steady on belief that countries like China would relying on cargo-haulers to feed their fast-growing economies.

Then came news of a global slowdown and the shippers lost the wind in their sails and got a few holes in their hulls as well.

Earlier this month, the Wall Street Journal ran a piece titled, "Charting a New Course? Shippers May Rebound."

The article quoted Ryan Detrick, a technical analyst (stock chart reader) with Schaeffer’s Investment Research, who noted the increasing buying on volume in shipping stocks.

"On a longer-term point of view, that’s a potential capitulation sign which suggests someone could bottom-fish and really be rewarded," Detrick said.

Brian

My new trading strategy: Boring old CD

2008-12-14T20:59:00.000-08:00

So I shut down my trading account Friday and went shopping for a CD.

I decided I couldn’t afford to pay fees anymore on the managed account when I wasn’t making any money in it.

To date, I’ve lost about 10 percent on my trading account, including taxes and fees. That’s a lot better than other folks out there, particularly some professional fund managers who have lost 40 percent or more.

But it’s still disappointing and discouraging to me.

The only reason I didn’t lose more is because I stayed out of the market more than I stayed in it this year.

I hear many people say that they just don’t look at their portfolios during times like these, opting instead to "stay the course" and wait for better market conditions to return.

For me though, too many stocks have fallen too far for me to stick around and have "faith."

Murphy’s Law probably dictates that this week will mark the definitive "bottom" and stocks will go soaring off into the atmosphere. I’ll probably be kicking myself and thinking: "If I had just waited one more week!"

Then again, the opposite might happen, and the market might continue to go lower.

No, for right now, I’d rather be safe than sorry.
I’d rather regret gains lost out on, than losses gained.

My search for a CD was a bit frustrating though. Yields are mostly pitiful.

My financial adviser actually suggested I go shop around somewhere, rather than accept the only poor yields she could offer. After surfing around on the Web, I managed to find a deal from MetLife Bank for a 4.15 percent yield on 1-year CDs with balances of $15,000 or more. That sounded perfect for my IRA that has been basically sitting dead in cash while I waited to see where this market was going to go.

Several other institutions are offering yields in the same ballpark, GMAC Bank and ING among them.

If you’re like me, and looking for something that at least comes with a guarantee of earnings (and FDIC backing), then you may want to do some shopping around yourself.

More unemployment woes

Bank of America rattled the economy last week with news it will cut 35,000 jobs.

That news came on the heels of Citibank’s decision to let 52,000 of its workers go.

Both announcements produced the equivalents of two small towns suddenly left without jobs.

Close to 2 million jobs have been lost since the recession began in December 2007, according to the Associated Press.

Depending what happens with the Big 3 auto-makers and ongoing bailout talks, that number could continue to grow. With all those people out of jobs not spending, that can’t bode well for stocks in the near future.

Brian

Harvard Endowment falls from grace

2008-12-07T20:50:00.000-08:00

The Harvard Endowment, which holds funds for one of the nation’s most elite colleges, was a shining star earlier this year when it was reported it had earned 7 percent to 9 percent on its holdings as of the first half of the year.

That news was the envy of many professional fund managers who have mostly measured their successes this year by losing the least. Out of about 9,100 U.S. mutual funds, only about five have been profitable this year, Fortune has reported.

Well, now Harvard Endowment has joined the ranks of the multitudes.

The Wall Street Journal reported last week that the endowment had shed at least 22 percent — about $8 billion — from July 1 to Oct. 31.

The endowment could lose as much as 30 percent by year’s end, the article stated.

That would make for the worst loss by the Harvard Endowment since 1974. Then, it only lost 12.2 percent, according to the article.

Another fund that had earned a gold star is now posting some dismal returns.

The CGM Focus Fund, which is run by fund manager Kenneth Heebner and was the No. 1 U.S. diversified stock mutual fund last year, is currently off by 52 percent, the Journal reports.

But Heebner doesn’t expect that performance to continue.

Heebner had earlier stoked his fund’s returns by shorting, or betting against, financial stocks, is now taking large positions in financials like Citigroup (C), Bank of America (BAC) and Brazilian Banks Banco Bradesco SA (BBD) and Banco Itau Holding Financeiera SA (ITU), saying they are beyond cheap at the moment.

Heebner told the Journal that he believes such financials will rebound in the next year because of efforts by the U.S. Treasury and Federal Reserve to free up lending.

Looking for dividends?

If you’re looking for some stability in the form of dividends, here are six stocks that offer yield more than 6 percent, courtesy of the Wall Street Journal:
Altria Group (MO), tobacco company, 8.4 percent yield; Autoliv (ALV), auto parts, 9.4 percent yield; Consolidated Edison (ED), utilities,
6.1 percent yield; Eli Lilly (LLY), drug company, 6 percent yield; General Electric (GE), conglomerates, 8 percent yield; Oshkosh (OSK), trucks, 6.9 percent yield.

Just remember, great dividends can be cut by companies facing challenges in a dismal economy.
And dividends won’t offset a stock price that continues to fall.

It pays to check price stability over a long period of time, say five or 10 years, for a particular stock.

This can easily be done by going to Google Finance or Yahoo Finance and using historical price or chart features to see how a high-yielder’s share price has held up over the years.

It’s the economy, stupid

Last week’s non-farm payrolls report showing that the economy shed 533,000 jobs in November, the worst losses since 1974, is not likely to bring any quick relief to the stock market.

Housing also continues to be stuck in a rut, creating a double-whammy.

With only a little more than a month until President-elect Barack Obama takes office, all eyes are on him to see what he will do to put the economy on the right track.

Some pin hopes on an economic stimulus plan that send a new wave of checks to consumers.

Hopefully, if approved, that would be enough to get things moving again.

Brian

Time running out for Fortune stock picks for '08

2008-11-30T20:46:00.000-08:00

In December of last year, Fortune magazine came out with its list of "The Best Stocks for 2008."

Supposedly, they were 10 stocks that "will thrive despite — or even benefit from — the troubles facing the markets next year."

Well, all I’ve got to say is they better hurry up and get to thriving.

Of the 10 stocks, only one, biotech Genentech (DNA), is up from the price it was back in December.

And some of the remaining nine, like General Electric (GE) and Electronic Arts (ERTS), have declined 50 percent or more.

Here’s a rundown of the stocks, with their price in December, followed by Friday’s closing price:
Annaly Capital Management (NLY), $17; $14.37
Berkshire Hathaway B shares (BRK-B), $4,750; $3,499
Dick’s Sporting Goods (DKS), $32; $12.61
Electronic Arts (ERTS), $55; $19.06
Genentech (DNA), $67; $76.60
General Electric (GE), $37; $17.17
Jacobs Engineering (JEC), $87; $44.77
Merrill Lynch (MER), $59; $13.22
Petrobras Energia (PZE), $11; $6.65
St. Joe (JOE), $28; $26.41

This is not to pick on Fortune. After all, everyone has had a pretty rough go of it this year in terms of stock-picking.

But it does teach a valuable lesson: Think twice before diving into recommendations carrying hyperbole. "The best," and "The hottest," and "Surefire" picks may turn out to be just the opposite.

A wise investment?

Investor’s Business Daily carried an article over the weekend taking a look at stocks and real estate investment trusts that focus entirely on senior living facilities.

"A senior-housing-focused business is not necessarily reliant on or impacted as much by things like GDP growth, consumer spending, employment growth and business travel," Keven
Lindeman, director of real estate services with SNL Financial, told the newspaper.

But the article cautioned that the senior living space was not totally without worry. At least for the time being, there seems to be a senior living center glut as declining home values have delayed some seniors from moving into such facilities.

One company that stands out, according to the article, is nursing home operator Ensign Group (ENSG), which has posted double-digit profit growth for four quarters.

Sleeping well on the sidelines

Once again, I am out of stocks and waiting for a clear sign that "up" is the new direction.
The Dow has posted five straight days of gains, but the volume, or number of shares trading hands, hasn’t been all that convincing.

I’m keeping my eye on some stocks, but mostly I’m just relaxing and not obsessing on the market. It’s much easier that way, but I know I’m going to turn around one day and see that a rally has begun anew.

Brian

Things to be thankful for, and it ain't the market

2008-11-23T21:03:00.000-08:00

Though Turkey Day is on the horizon, this year hasn’t given us much to be thankful for, at least as far as the stock market goes.

With the holidays coming on, I was going to try to stay upbeat.

I wasn’t going to talk, for instance, about how once again I have cashed in all my shares and given up hope about the stock market.

I wasn’t going to talk about how the Vanguard 401(K) into which I’ve been faithfully dribbling what little cash I can each month has been cut in half in the past six months.

Nor was I going to mention that I was less than encouraged about Friday’s fat rally of nearly 500 points in the Dow, because I know that recent history says this week will be full of more ups and downs — but mostly downs — and the uptick hardly makes up for the 43 percent cliff the index has fallen over since the highs in October of last year.

I wasn’t going to talk about how all those comparisons of the current market to the Great Depression seemed so crazy six or eight months ago, but now don’t seem so far-fetched after all.

So I won’t.

Instead, I’ll spend the rest of this column talking about some of the things I am thankful for.

I am thankful for the fact that my 12-year-old son, Brady, is coming to visit me from New Jersey this Thanksgiving. He lives too far away and I don’t see him enough, so I am thankful he is coming. I plan to send him home well-fed.

I am thankful for my new little boy, Cooper, and even though he is too young yet to gobble any gobbler I’m sure he’ll get a kick out of meeting his brother for the first time.

I’m thankful for my oldest son, Justin, and even though he won’t be able to make if for the holidays, I’m thankful he’s safe and he’s thinking about the future.

I’m thankful for my terrific wife, Stacey, who puts up with my blathering about the stock market all the time.

I’m thankful for cookbooks, good wine and great Scotch — even though I’ve been drinking the discount stuff lately.

I’m thankful for the invention of the iPod.

I’m thankful for Dostoyevsky. Ditto Henry Miller, Cormac McCarthy and Gabriel Garcia Marquez.

I’m thankful for the Coen brothers.

I’m thankful I have a job.

I’m thankful I don’t have to stand in the unemployment line.

I’m thankful I have enough to eat.

I’m thankful I’m not an auto worker, or an employee in the financial industry, or a bank robber, or a sports commentator.

I’m thankful I live in this country, though I know it has its problems and a lot of people abroad don’t like us very much.

I’m thankful for the outcome of the election, even though I’m probably not supposed to say that because it will be interpreted that I’m biased.

Don’t worry, I’ll still criticize him if he doesn’t do a good job, and he’d better, because we need more than anything right now for a good job to be done.

That would be something we could all be thankful for.

Happy holidays.

Brian

There's a new index to kick us around

2008-11-17T05:00:00.000-08:00

There’s a new index in town. It’s called the Global Dow.

Now we have something else to watch go down, I guess.

The index launched Tuesday and contains 150 stocks, rather than the 30 its cousin, the Dow Jones Industrial Average contains.

And rather than strictly U.S. companies, the Global Dow reflects stocks from around the world, as its name implies.

It includes Russian oil and gas giant Gazprom OAO, Spanish bank Banco Santander and Chinese solar firm Suntech Power holdings.

Of course, some U.S. stocks on the tradition Dow like United Technologies Corp. (UTX) and Wal-Mart (WMT) are also on the Global Dow.

In introducing the new index, Wall Street Journal Managing Editor Robert Thomson said the Global Dow is a reflection of the increasingly interconnected world of commerce and finance.

"What's become very obvious, sometimes painfully obvious, is that the world has never been more coupled commercially and financially," Thomson said at a press conference.

He gave as examples the world's attention on China's recently announced $500 billion-plus economic stimulus package and the impact of tiny Iceland's financial collapse on the rest of the globe.

"Who would have thought a relatively small country would have so much impact," Thomson posited.

The geographic weightings are as follows: U.S., 42 percent; Europe, 32 percent; and Asia-Pacific, 21 percent. The rest is sprinkled among emerging markets.

Though the index gives a broad and unique measure of global growth and investing potential, the stocks in it have had a far-from-stellar year so far.

Taking the index back from Oct. 31 to the beginning of the year, it has lost 42 percent on a return basis, according to MarketWatch.

But back-tested five years, the Dow Global Index would have returned 17.8 percent, better than the returns of its close relatives, the DJ Wilshire Total Market Index and the S&P Global 100 — 15.4 percent and 13 percent, respectively.

Should I stay or should I go?

The markets continue their see-saw ride. Witness last week when the Dow closed down 411 points, then up 552 points and then down 337 points on Friday.

This isn't volatility. This is gut-wrenching, white-knuckle, roller-coaster-off-the-rails insanity.

With the markets in decline more than 40 percent since the highs of last October, many say it's too late to cut your losses and get in cash. It's best to ride this thing out.

They say you should even be buying — that stocks are at unprecedented lows and one can clean up and be sitting pretty three to five years from now.

I remain committed to doing nothing. I am still in stocks, but I am more poised to sell than buy.

I'd rather regret potential gains than realized losses.

Brian

Will Obama bring the bull or the bear?

2008-11-09T21:01:00.000-08:00

President-Elect Barack Obama may have received an overwhelming endorsement from the voters, but Mr. Market is still undecided.

The two days following Obama’s election, the market posted a woeful sell-off of more than 900 points in the Dow. That was followed Friday by a decent gain of around 250 points in the Dow, but on light and unconvincing volume.

The jury’s still out on whether Obama, a Democrat, will cause stocks to rise or fall.

Conservatives fear his promises to raise taxes on the wealthy and intensify regulation may put a damper on any potential climb in the stock market.

But others hold faith in the fact that Obama has aggressively engaged financial experts — among them, former Federal Reserve Chairman Paul Volcker — to seek a solution to the current economic crisis.

Obama also has support from some heavy-hitters in the investment and business world, including Warren Buffet and Google CEO Eric Schmidt.

Only time will tell.

Maybe a peek at history holds a clue.

When former President Bill Clinton, another Democrat, entered the White House in 1993, the Dow was just at 3,300. Seven years later, it was at nearly 11,000 — an increase of more than 200 percent.

Ditto the Nasdaq, which rose from just under 700 to 3,900 during the same period.

Obviously, Obama has a tidal wave of obstacles to overcome before he can work the same magic.
General Motors (GM) has said it is nearly out of money, Goldman Sachs (GS) economists are predicting the worst unemployment since the end of World War II — 8.5 percent by the end of 2009 — and retailers are expecting anything but a jolly Christmas.

The hope that we could limp along for a period, relying on the growth of foreign and emerging markets to lift all boats, has also been dashed, as governments abroad are slashing their interest rates and racing to stave off their own recessions.

Headlines in the Wall Street Journal and other business publications read like obituaries, with companies laying off workers, postponing expansions and even heading to bankruptcy court.

Some are already beginning to question whether Obama’s enthusiasm and sense of urgency are enough to conquer this current landscape.

Of course, when things get this bad, some advise it’s time to buy.

But a roundup of hedge fund newsletters by MarketWatch this past week suggests there are still many who are hesitant to begin buying equities.

Some of those highlighted in the MarketWatch piece suggest it will be another couple of years before it’s truly safe to buy stocks.

One of those was Kyle Bass, managing partner of Hayman Advisors, who told investors in an Oct. 17 letter, to "be careful buying ANYTHING today."

According to the MarketWatch piece, Bass was also highly critical of a recent editorial in the New York Times from Warren Buffet suggesting that now is the time Americans should begin buying stocks. After all, Buffett wrote, that’s what he is doing.

"Mr. Buffett has enough money to be able to have his holdings drop 50 percent and still fly in his jets and live the way in which he has become accustomed," Bass wrote in his investor note. "Do you have enough capital to take what you have left, cut it in half, and continue to live the way you have for the past few years? I don’t."

I still remain in stocks, though I fortunately cut my position in business consulting firm FTI Consulting (FCN) days before a lousy earnings forecast shaved 24 percent off the share price. FTI was a recent high-flyer and started looking shaky. I don’t want to take any chances the way things are going. This time my concern paid off.

Brian

Should you consider preferred stock?

2008-11-02T20:47:00.000-08:00

You probably recall the recent great deal Warren Buffett got in preferred stock of General Electric (GE) and Goldman Sachs (GS), those shares netting him a dividend yield of 10 percent.

Of course, most of us aren’t Warren Buffett and won’t get that type of deal.

But there are still decent yields to be found in preferred stock.

There are risks, too, however.

The latest edition of Fortune magazine carries an article entitled, “Be Like Buffett? The Case for Preferred Stock.”

In it, Oppenheimer & Co. analyst Meredith Whitney says she likes preferred shares of strong financials like J.P Morgan Chase, Bank of America and Wells Fargo, even though she’s been bearish on financials overall.

Preferred shares in those “strong” financials have been yielding between 8 percent and 9 percent, according to the article.

Similar to bonds, preferred shares carry a commitment by the company to pay a certain amount of interest to shareholders.

However, preferred shareholders are next in line behind bondholders for payment, should a company encounter problems. Therein lies one of the risks.

Preferred shares can also be a bit of a hassle to research. Pour enough money into the preferred of a company that suddenly hits the skids and you may be left holding the bag with defaulted shares.

Also, preferred shares are often subject to more volatility than other fixed-income assets.

Even so, a May article in USA Today looking at preferred shares noted that the equities had returned a 7.4 percent annual rate of return since 1900. That was less than common stock returns of 10 percent, but better than the 6.4 percent earned by corporate bonds.

Bottom line: If nothing else, preferred shares can be a good diversifier for those looking for income yield.

And like every other investment class, there’s an exchange-traded fund, or ETF, that can give you preferred share exposure with little hassle.

The Fortune article notes iShares S&P U.S. Preferred Stock ETF (PFF).

Morningstar says the ETF is a good option for investors looking for extra fixed-income yield, as long as they are comfortable with more volatility.

A Morningstar analyst also suggests a strong stomach for exposure to financials, since 74 percent of the ETF’s holdings were in that sector as of September.

“Prior to July, iShares U.S. Preferred Stock ETF had held up considerably better than the common equity of financial stocks, but fears surrounding bank failures and a continued collapse of the mortgage market put even the security of structurally superior preferred shares in doubt,” the analyst wrote. “Although things have settled down quite a bit, this should serve as a reminder to any would be investor that there is still a decent amount of risk inherent in this ETF.”

Morningstar also mentions as preferred stock ETF options the PowerShares Financial Preferred Portfolio (PGF) and the PowerShares Preferred (PGX). The latter also has a high concentration in financials, about 70 percent.

If you want to check out individual preferred shares, QuantumOnline.com allows you to do so with free registration.

Send me your ideas

As always, I’m looking for your stock picks and ideas.
Please e-mail me at bneill@bradenton.com or post a comment here.

Brian

Ghouls and goblins of Wall Street

2008-10-27T09:35:00.000-07:00

I’m a horror movie fan and I am always on the prowl for a good slasher flick or ghost story during Halloween.

But this Halloween I can get all the frights and chills I need just by checking my stock quotes throughout the day.

It has been a wild ride lately.

The daily ups and downs are like Freddy Krueger’s knife fingers screeching down the wall.

News that other countries’ economies are also slowing and their banks are failing is like that creepy girl crawling out of the TV set in "The Ring." So with that in mind, I came up a few of my own ideas for scary movies:

"The Day the Dow Hit 5,000": Don’t say it can’t happen. You probably would have thought the Dow at 8,000 was improbable a year ago when it was at 14,000. Some pundits have already theorized that it’s a possibility and at least one Web site, Dow5000.com, is devoted to the idea. It was only three weeks ago that Seth Glickenhaus, a 94-year-old trader who worked on Wall Street during the Great Depression, told the Wall Street Journal that he could easily see the Dow hitting 9,500, given all the volatility and turmoil. The Dow was at 10,325 then, and we closed Friday at 8,378. Getting scared yet?
"When Nations Collide": There has been a lot of tension mounting lately between the United States and Russia. It started back with the invasion of Georgia, but it’s continued to simmer with Russia’s expanding its dialogue with Venezuela, an oil-rich country that’s not on the White House parties invitation list. Earlier this month Russia sent warships to Venezuela to conduct military exercises with its navy. If you think a bad unemployment report can massacre the market, wait till you see the bloodfest brought on by more global instability. Your computer screens will run red!
"Attack of the Machines": You probably read last week how "circuit breakers" on the New York Stock Exchange caused morning futures trading to halt. The failsafe mechanism kicks in when an extreme shift in market value takes place in a short time — typically a panic selling moment. Computers are more and more ingrained in Wall Street and the exchanges of other countries. Back in September the London Stock Exchange shut down for seven hours because of a computer malfunction. What if several countries’ systems shut down simultaneously? Or what if the circuit breakers didn’t do what they were supposed to do and the selling grew out of control?

Freddy and his legions of ghouls don’t seem so scary any more, do they?

But for the truly brave who aren’t afraid to bottom-fish for stocks, the Wall Street Journal recently offered these suggestions:
Autoliv (ALV), an auto parts maker; Crane (CR), an industrial products manufacturer; Eaton (ETN), which makes aerospace parts; Manpower (MAN), staffing and outsourcing; Seagate Technology (STX), data storage devices; and Textron (TXT), aircraft and industrial businesses.
The article noted that all six companies have ample free cash, have been growing sales and pay respectable dividends.

The six stocks also have an average forward price-to-earnings ratio of 6.8 percent, far below the 15 or so widely considered as "cheap."

I still remain committed to the market, but I’m sleeping with the covers over my head.

Buffett's words wisdom or strategy?

2008-10-20T07:30:00.000-07:00

Warren Buffett’s op-ed in the New York Times last week caused quite a buzz.

In it, he declared that now was the time to buy U.S. stocks and that was exactly what he was doing.

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” Buffett wrote. “And most certainly, fear is now widespread, gripping even seasoned investors.” For many pundits this effectively signaled an all-clear.

But at least one individual questioned putting too much stock in Buffett’s blessing.

David Weidner wrote on MarketWatch.com the following day that Buffett doesn’t buy stocks like you and I do.

We can’t, for instance, buy thousands of shares in General Electric (GE) and negotiate for $3 billion in special preferred stock that pays a 10 percent dividend for at least three years, Weidner wrote. Ditto for Buffett’s purchase of $5 billion in preferred stock in Goldman Sachs (GS), which also gives him a 10 percent dividend and warrants to buy future shares at discount prices.

However, even Buffett didn’t think shares in the companies were going to drop as far as they have, Weidner asserts.

“One cheap, easy way for Buffet to reverse his losses is by penning an editorial using his huge sway, folksy style and hints of patriotism to stir up some buying,” Weidner wrote.

Whether that is true or not, many investors, including me, get lulled into Buffett’s sage grandfather schtick and become mesmerized by the financial media hanging on his every word.

It’s easy to forget that Buffett, like all the rest of us, is out to make a buck. He didn’t get to be a billionaire without a high degree of shrewdness.

But I do believe that now is a good time to be buying.

I remain in the market with about a 50 percent allocation to stocks and I’m keeping my eyes open for things that look intriguing.

Here are a couple I’m keeping my eyes on:

Thoratec (THOR). This medical company makes the HeartMate II ventricular assist device. It also makes blood pumps and various medical testing devices.

The company’s stock has risen from the $15 a share range to $27 since April, despite the carnage in the market lately.

Investor’s Business Daily gives the stock its highest composite rating, a 99, based on its profit growth, price strength and other factors. Thoratec carries an A+ rating from Investor’s Business Daily for its accumulation, meaning high-volume buying taking place in its shares.

Another thing that makes it attractive is its place among health care stocks, which have been showing a lot of strength lately.

Another stock in the same industry field that I’ve been watching is Emergent Biosolutions (EBS).

The company makes various vaccines, inluding ones that protect against weapons of bioterrorism.

Emergent Biosolutions announced this month that the U.S. government had committed to purchase 14.5 million doses of its BioThrax anthrax vaccine in a contract worth $404 million. That’s on top of an existing $448 million contract the company already has with the government.

Some analysts, however, predict soft earnings for the company when it reports Nov. 6.

As always, don’t take my mention of a stock as an endorsement to buy it. You can lose money doing so.

Brian.

Don't push yet, I'm checking the Dow

2008-10-13T06:12:00.000-07:00

So there I was with my wife this past Friday, waiting for our new beloved addition, Cooper James Neill, to enter this world.

It was a tough day for my wife, who endured 18 hours of labor before our 7-pound, 13-ounce little boy was making his way to be weighed and swaddled.

It was a tough day for me, too, as I struggled to check stock quotes on my laptop infrequently enough to not draw ire from my wife and mother-in-law, but frequently enough to know whether I should throw up my arms and cash in my chips as the market continued its mounting loss — currently at more than 40 percent below October highs.

Fortunately, stronger labor came on for my wife right about the time the Dow was logging its worst gains for the day, otherwise I might have panicked and hit the “sell” button.

What kind of thoughtless, unfeeling lunatic is sitting there checking stock quotes while his wife is in labor?

Well, a lunatic who is scared to death of a complete unraveling of the financial system, but still has the intestinal fortitude and faith (stupidity?) to keep playing this game called the stock market.

I can’t tell you how many people I’ve heard say lately that they’re not even opening their 401(k) statements because they’re afraid of what they will see. To me, that doesn’t even make any sense.

But admittedly, I, too, am being a little hands-off at the moment.

At this point, it’s down to what our leaders and those of other nations have been able to craft this past weekend in the way of a fix to the current global economic crisis.

Understandably, some countries are resentful that they’re being asked to subsidize the financial errors committed in the United States through the rampant speculation in the subprime mortgage market.

But as of Sunday evening, most countries had acknowledged the magnitude of the financial crisis and were working to bolster banks and financial institutions.

It is certain that we are at a turning point — one that will take us ever deeper into the abyss, or one that will make the dedicated and patient investors a whole lot of money.

The Wall Street Journal carried an interesting piece this weekend that drew a comparison between today’s stock values and those during the bottom of the Great Depression.

Currently, nearly one in 10, or 876 stocks, are trading below the value of their per-share holdings of cash — bargain-basement cheap, according to the Journal.

I still remain in the game with Apple (AAPL), Mosaic (MOS), Southern Company (SO), U.S. Bancorp (USB), Procter & Gamble (PG), Perrigo (PRGO), International Business Machines (IBM) and FTI Consulting (FCN).

My stock allocation is about 50 percent. I’ve scaled into these over the past month or so from an all-cash position. As of now, I’m down about 7.5 percent.

Brian

Is a turnaround in the making?

2008-09-22T13:03:00.000-07:00

After a whiplash week that saw the Dow plunging below July lows and analogies to the Great Depression flying on the airwaves and in the pages of the Wall Street Journal, Friday brought us nearly back to even.

The government’s actions to stabilize the markets, including talk of reviving a Resolution Trust Corp.-like agency that would buy and liquidate problem assets, had buyers out in force Thursday and Friday.

So here I am to join the cacaphony of voices that I keep criticizing, the ones who repeatedly ask, "Is it time to buy?"

If recent market action is any indication, I certainly have my doubts.

We did come back from some dismal depths this week, even though we ended up right back where we started.

Indeed, Thursday and Friday's rallies were impressive. Investor's Business Daily, however, was still advising to stay on the sidelines in cash.

I decided differently and took small positions in utility Southern Company (SO), generic drug maker Perrigo (PRGO), clothier Urban Outfitters (URBN), U.S. Bancorp (USB), and business consulting firm FTI Consulting (FCN).

We'll see how it goes.

Many experts see the current proposals on the table, which include the government assuming problem assets of banks for later liquidation and a temporary ban on short selling in the financials, as having more teeth than the myriad lifelines the government has been tossing out along the journey to this crisis.

The $85 billion loan to insurer AIG resulted in a resounding thud in the market. But Thursday and Friday's developments sent the Dow up more than 700 points over the course of two days.

Ken Heebner, who heads the CGM Focus Fund, which had the best performance among U.S. stock funds through June with a 17 percent return, applauded the government's tactics and balancing act through this crisis during an appearance on CNBC.

Again, we'll see how it goes.

More fuel for the bulls

There's been a lot written and said about the Chicago Board Option Exchange's volatility index, or VIX. It's an index that basically tracks market volatility by following what investors are willing to pay for options to offset market swings.

On Thursday, the VIX hit a level not seen since 2002 — prompting many to consider that a bottom had finally been reached in the market, according to a Wall Street Journal article Friday.

According to the article, industry watchers had been waiting for the VIX to jump above 35 or 40 before considering that a rebound was in the works. On Thursday, the indicator hit 42.16 at one point during the day.

Not everyone was convinced, however.

"You can't use history as your guide here," Steve Sosnick, an equity risk manager with Interactive Brokers' Timber Hill told the Journal. "We're dealing with stuff that no one has seen before. This market is like a minefield."

Brian

Some real stinkers in the market

2008-09-15T07:06:00.000-07:00

It’s been tough for everyone on the stock-picking front lately.

In the latest edition of Fortune, the magazine laid out its worst picks from its "The Best Stocks for 2008" issue published in December. The 10 stocks the magazine picked have posted an average return of minus 12 percent, versus minus 10 percent for the S&P 500.

Topping the list of stinkers was Merrill Lynch (MER), which has dropped 55 percent since December. Dick’s Sporting Goods (DKS) has also dropped 40 percent in that time. Other losers thus far included: Berkshire Hathaway (B shares, BRK.B), down 20 percent; Annaly Capital Management (NLY), down 13 percent; and Jacobs Engineering (JEC), down 22 percent.

The magazine did score with Florida real estate developer St. Joe (JOE), up 30 percent, and pharmaceutical firm Genentech (DNA), up 44 percent. And the magazine didn’t count out the others -- with the exception of Dick’s -- for a late-year comeback.

Good news still bears no fruit

Investors' obsession of late had been the price of oil going up. Everyday the price of a barrel of crude went up, stocks typically went down. Well has anyone noticed where crude is now? On Friday, at one point it went below $100 a barrel for the first time since April.

That's after hitting a peak of $147 in July. But the reaction's been less than enthusiastic, giving all the turmoil that still continues in the credit markets. Deals are being made and proposed and as of this writing, everyone awaits the fate of Lehman Brothers (LEH), which is poised to fail unless it finds a buyer or a savior.

Bond guru Bill Gross of Pimco was preaching the gloom-and-doom of a "financial tsunami" in the works. That was, until his firm, which had invested heavily in the debt of Fannie Mae and Freddie Mac, netted $1.7 billion from the government takeover of the two mortgage agencies.

After the bailout, Gross was on CNBC saying that the Fannie-Freddie bailout likely signaled a turnaround — a rosy view that a $1.7 billion payday would no doubt inspire (no shot at him; he's a smart guy).

But hopefully he's right and the little guys get a chance here soon.

Down but not out

I realize I've been a broken record lately about how dismal things are, but I have not given up. Even though I pulled the plug on my positions, I still await signs of some sort of restored faith. There's been a lot of chatter about retailers coming back in favor soon. Jim Cramer of "Mad Money" thinks that if gas prices continue to go down, consumers may actually go shopping this Christmas.

I think his thesis overlooks the thousands of people who are losing their jobs each month. Also, pump prices haven't been heading down like crude prices have. But hey, maybe he's right. If you agree, here are a few that Investor's Business Daily have been giving high marks based on sales and fundamentals: Urban Outfitters (URBN), Wal-Mart (WMT), Aeropostale (ARO) and Buckle (BKE).

Happy hunting, but as always, proceed at your own risk.

Brian

Diary of a madman

2008-09-08T09:06:00.000-07:00

When I first started writing this Taking Stock column/blog however long ago, it was intended to be a diary of sorts that would convey the average guy's attempts to beat the market, or at least stay ahead of the game.

Well here's today's entry: I'm sick of it all. I'm sick of the question: "Do you see a bottom in sight?" Ditto: "Do you think we'll turn the corner soon?", "Is it too early to jump back into financials?", "What do you think the week's going to be like for stocks?" and "What do you make of this data?" I'll tell you what you can make of the data: Nothing. Because nothing makes sense.

At midday last Tuesday the Dow rallied to 11,700. By midday Friday we were on the brink of breaking through the 11,000 floor again. I get whiplash watching it all. And of course, I followed the dumb herd and dumped what little I had "put to work" in the market before the selling subsided Friday afternoon.

Already I'm questioning the move, and even though I promised my wife a stress-free weekend, I'm sure I will have internally beaten myself up by the time you read this. But was it the wrong move? Unemployment jumped to 6.1 percent last week, taking many by surprise.

Some top economists have opined that even if the Fed cut rates again after their already aggressive loosening campaign, it would do little to improve the current economic picture. Apple (AAPL) is getting ready to unveil some super-duper, nifty, secret gadget on Tuesday.

But how many of the thousands of people losing their jobs each month will want to, or be able to, pony up the money for it? I've just become incredibly frustrated of late and figure it's bet to sit tight until some type of clear signal emerges — if indeed it ever does.

So as I write this entry on a Friday afternoon, I look forward to a relaxing weekend, free of any thought about the market or what it might be doing come this week. I won't be bothered by that nagging thought: "Should I have stayed in?", or even "Do you think we'll turn the corner soon?"

Yeah right, who am I kidding?

Brian

GDP surprise give markets a boost

2008-09-01T06:21:00.000-07:00

The main business headline Thursday was a revision to Gross Domestic Product projections that showed the U.S. economy grew faster than earlier thought during the second quarter. That news sent the Dow marching upward by more than 200 points. But as we've learned in recent months, good news is only as good as the next bit of bad news, and that came Friday when new data on consumer spending and personal wealth helped sour the mood again. Personal income fell .7 percent in July, the biggest drop in three years, according to the U.S. Department of Commerce. Consumer spending also dropped .4 percent, the lowest since 2004. There has been a lot of concern lately about how much longer the country's consumer base can keep doing its thing as layoffs continue, the job market remains weak and more and more people increasingly resort to their credit cards for necessities, rather than the gadgets and toys they used to charge. Once you max out your Visa or MasterCard on groceries, then what? That concern was evident Friday in the resulting triple-digit decline in the Dow that took back more than half of the previous day's gains (and for whatever reason, MarketWatch continued to carry the headline "Blue chips rein in day's loss" as the Dow's losses actually accelerated to close down 170 points). Some investors are putting much stock (the faith kind) into multinationals for their ability to sell goods abroad, even while the economy at home languishes. A great example of this is Coca-Cola (KO), which got a lot of exposure during coverage of the Olympics in China, where it is trying to grow its brand. But there have lately been signs of slowdowns abroad that put that theory in question. My confession: I'm really getting burned out an all of this. Watching the daily see-saw between stocks and oil, being told this piece of data is a game-changer only to be told just the opposite the next day and the incessant rants of pundits who profess to possess some type of crystal ball, have all served to drive me to the brink of insanity. Take for instance this comment from Doug Kass, a guy I read frequently enough on TheStreet.com: "The key factors that I feel will influence the course of the market for the balance of the year clearly include politics, credit markets, housing, interest rates, crude oil and other measures of inflation, corporate profits and geopolitical events." Wow. That's what I call hedging your prognostications. The only thing he left out was killer bees. My returns lately have been slightly negative. I ditched the short real estate and financials ETFs I recently entered. I remain in DIA, XLF, MDY and SPY.

Musical chairs with the financials

2008-08-25T11:59:00.000-07:00

When Warren speaks, the market listens. That was evident Friday morning when Warren Buffet, the Oracle of Omaha, disclosed that he had increased stakes recently in one of either American Express (AXP) or Wells Fargo (WFC).

The result was both stocks were up during the day and the financials, which are now in about Round 3 of their beat-down, got a slight reprieve. Will it last? Doubtful.

The housing crisis is still far from over, according to many experts, including Warren himself. Banks are holding huge volumes of real estate that they have had to write down values on and can't sell due to a lack of qualified buyers or investors who are still waiting on the sidelines for prices to fall further. Litigation and finger-pointing still continues in connection with auction-rate securities, which were sold to thousands of investors — including this one — as safe, secure, cash-like investments, when they were anything but.

I'm just starting to get into Mohamed El-Erian's book "When Markets Collide: Investment Strategies For the Age of Global Economic Change," but what I've learned so far about the risks that major banks took and the complicity of ratings agencies in making various types of securities and credit look better than they were, is staggering.

The co-CEO and co-CIO of the Pimco bond firm also writes about cutting a vacation short in August of 2007 to reassess the cash position of the Harvard Endowment, which he ran at the time. The worry was that even safe havens like money markets may not hold their $1 per share par value and "break the buck," which some did.

Bottom line: There are probably more surprises to come. One such surprise, which preceded Friday's smiley face for financials, came from a former International Monetary Fund economist who predicted that a major U.S. bank — as in one of the big boys — would fail in the next several months. You know what they say about opinions, but that is one that probably shouldn't be ignored.

That said, here's how I've been playing the financials: I took off half my position in the Financial Select Spider ETF (XLF) and entered equal positions in ProShares UltraShort Financials ETF (SKF) and ProShares UltraShort Real Estate ETF (SRS). I paid for those moves on Friday, after the Dow finished up nearly 200 points. I ended the day down better than 5 percent on each of the short ETFs, which go up in price when their sectors fall.

But the Wall Street Journal reported that SKF was at the top of the list at midday for buying on weakness, meaning the largest inflow of money entered the ETF despite its price dropping. I still have long exposure through ETFs to the Dow, S&P 500, mid-caps and financials. I'm hoping that the shorts help hedge my portfolio for when the next shoe drops.

But the real rationale behind this strategy is that I'm just plain confused.

Brian

New investment vehicles seek to mimic the master

2008-08-18T07:53:00.000-07:00

Add another innovation to the investor’s toolkit.

Deutsche Bank has issued a set of exchange-traded notes that attempt to duplicate the value-investing prowess of the late Benjamin Graham.

Graham is known as the father of value investing and he authored the two books "Security Analysis" (with David Dodd) and "The Intelligent Investor," which are both considered must-reads for serious investors. I confess to having read neither, but they’re on my list, I promise.

One of Graham’s most noteworthy disciples is Wall Street guru Warren Buffet. Graham espoused investing in companies as if one were actually buying into the business.

For that reason, he recommended buying stock only in companies that had sound, liquid balance sheets and good prospects for profits.

That’s what the Benjamin Graham Large Cap Value Index Total Return (BVL), Small Cap Value Index Total Return (BSC) and Total Market Value Index Total Return (BVT) ETNs seek to do.

ETNs are similar to exchange-traded-funds, which are baskets of stocks like mutual funds that trade throughout the day as an individual stock would. However, rather than stock, ETNs invest in debt. For that reason, ETNs are subject to credit market risk, experts say.

And despite the namesake pillar these new ETNs are built on, some were already questioning the hype factor of the investments before the prospectus ink was even dry.

"Celebrity branding makes me nervous," Matt Hougan, editor at IndexUniverse.com, told MarketWatch. "How will these things actually perform? Just because I wear Air Jordan [shoes], it doesn't mean I can dunk."

Time to board airline stocks?

Sitting around Tampa International Airport at about 12:35 a.m. last Monday after my visiting 12-year-old son's plane from New Jersey had been delayed at least three times, I was thinking about how cruddy, how absolutely horrible air travel and the airline industry has become.

That thought was solidified with the remark one of two de-planing pilots made to an anxious passenger running back to the gate to retrieve an item he had left behind.

"It's at the pawn shop already," the empathetic pilot said. "Did you see the look on his face?" the other pilot said as the man rushed down the walkway to the plane.

Charging for pillows and blankets? Charging for water?

But despite the industry's woes, some are seeing value in airline stocks.

Much of that optimism, however, has come from the steep drop in oil prices. No one can say with 100-percent certainly that oil prices will stay down.

But the move has caused shares of U.S. airlines to rebound in recent weeks. Last week a Morgan Stanley analyst predicted that the sector might return to profitability if oil prices are held in check.

The Morgan Stanley analyst singled out U.S. Airways (LCC) and United Airlines parent UAL Corp. (UAL) as most likely to benefit from more favorable industry conditions, according to the Wall Street Journal.

Still, I tend to embrace the advice of "Mad Money" host Jim Cramer, which is to never own an airline stock, under any circumstances. There's just too much uncertainty involved in the industry, regardless of how many pillows and cups of water they can sell.

Brian

Shotgun ETF approach keeping me in the game

2008-08-11T06:50:00.000-07:00

The market put a nice finishing touch on the week Friday with the Dow's surge of more than 300 points.

Whether it was renewed dollar strength, crude's drop to a three-month low, or the magical powers of 08-08-08, I don't really care. I'm just glad it happened.

I picked up about 2 percent for the day in my portfolio consisting of four ETFs: Dow Diamonds Trust (DIA) and State Street Global Advisors SPDR S&P 500 (SPY), S&P MidCap 400 (MDY) and Financial Select Sector (XLF). I'm still staying away from individual stocks — with the exception of American Public Education Inc. (APEI), which I bought and sold in the span two days, because I wasn't convinced (although it was up over 5 percent on Friday).

I've also resisted jumping in with both feet in terms of allocation to stocks, despite our rise of more than 6.5 percent in the Dow since hitting a low of 10,900 in mid-July. Jobs are still being lost, banks are still revealing their dirty secrets and retailers — even the discounters like Wal-Mart (WMT) and Target (TGT) — are reporting soft sales.

Caution is still the rule of the day for me, even though the market of late seems to be saying that all is not lost. I believe the ETFs I hold give me a fairly broad exposure to the market while it sorts itself out.

That doesn't mean I'm going to shun individual stocks. But with the volatility of late, these baskets of stocks help me sleep better. Here are the top five holdings of each, with the ticker symbols omitted for the sake of space:

DIA: IBM, Chevron, ExxonMobil, 3M and Caterpillar.

SPY: ExxonMobil, General Electric, Microsoft, Procter & Gamble and Johnson & Johnson.

MDY: Arch Coal, Cleveland-Cliffs, Activision Blizzard, FMC Technologies and Pioneer Natural Resources Company.

XLF: Bank of America, J.P. Morgan Chase, Citigroup, Wells Fargo and Goldman Sachs.

I've also thought about adding a medical/health care component through an ETF like the SPDR Health Care Select Sector (XLV).

Medical stocks have recently overtaken energy stocks in the first-place spot on Investor's Business Daily's sector performance ratings.

Harvard endowment beats brutal market

The Wall Street Journal reported last week that the Harvard University endowment, with about $35 billion in assets, returned 7 percent to 9 percent at the fiscal year ending in June — no small feat given the ups and downs of the market during that period.

Most institutional investors posted lower or negative returns during the same period, the article noted. The Harvard endowment boosted returns by investing in commodities, Treasurys and hedge funds. Through part of the year, the endowment was headed by Mohamed El-Erian, who stepped down in December to go back to work at Pacific Investment Management Co., known as Pimco, according to the Journal.

El-Erian just released a book titled, "When Markets Collide: Investment Strategies for the Age of Global Economic Change," which I just picked up, thanks to a Borders birthday gift card from my in-laws.

Brian

Stuck in fickle market doldrums

2008-08-04T07:27:00.000-07:00

It didn't take long to get back into the doldrums this past week.

A mid-week ADP jobs report generated some optimism among traders, but that was quickly squashed on Friday with news from the U.S. Department of Labor that non-farm payrolls fell by 51,000 and unemployment had reached a four-year high of 5.7 percent.

But Friday's market didn't sell off like it could have given that news, as well as the lackluster - OK, pathetic - earnings and forecasts that have been reported.

That gives me hope that maybe we've reached some stability. One analyst on CNBC suggested we're skipping along the bottom.

A chart shows that the 10,962 low in the DOW we hit on July 15 has not yet been revisited. Hopefully that support can hold.

I remain committed to holding a set of ETFs I've blogged about in the last couple of weeks that give me a diversified expsosure to the Dow, S&P 500, mid-cap stocks and financials (details can be found in an earlier posting from a couple of weeks ago).

On Friday, I also nibbled at American Public Education Inc. (APEI), a provider of online post-secondary education.

Some analysts have suggested the stock is poised to do well because of the economic downturn. They suggest people laid off or in transition may seek American Public Education's services to help them facilitate a career change.

But as of Monday morning, I decided to sell the stock because it was getting hit pretty hard and had dropped nearly 5 percent in early trading. Too much for me, particularly in this market.

It's been less than encouraging on the stock buying frong with all the activity of late. But just remember, it has to go down to go up.

Better data for munis

The Securities and Exchange Commission is planning to start a free database that provides pricing and credit rating information on municipal bonds for individual investors, according to a recent story in the Wall Street Journal.

According to the story, the move is an attempt by the SEC to provide more clarity for investors in municipal bonds due to "major shortcomings" in accounting rules for municipalities.

"It's the first real initiative to get retail investors information easily," Frank Chin, chairman of the Municipal Rulemaking Board, told the Journal.

Individual investors own about$1.86 trillion in municipal bonds, according to the article.

The SEC is currnently operating a pilot program of the municipal bond information data service at http://emma.msrb.org.

Brian.

Stocks can be a lot like aluminum cans

2008-07-28T05:32:00.000-07:00

When things are this topsy-turvy, it sometimes helps to have a sense of humor.

Fortunately a colleague gave me something to laugh about.

This was circulating by e-mail. I can't attest to its accuracy or the date which it was written. My apologies to anyone who might have owned any of these stocks:

"Retirement Plan Investment Tip: If you had purchased $1,000 of Nortel stock one year ago, it would now be worth $49. With Enron, you would have $16.50 left of the original $1,000. With WorldCom, you would have less than $5 left. If you had purchased $1,000 of Delta Air Lines stock you would have $49 left. If you had purchased United Airlines, you would have nothing left.

"But, if you had purchased $1000 worth of beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling refund you would have $214.00. Based on the above, the best current investment advice is to drink heavily and recycle. This is called the 401-Keg Plan."

The action lately might drive you to drinking, but hang on, it's going to get better — or worse.

I recently blogged that I entered small equal shares in four ETFs: State Street Global Investors Financial Select Sector SPDR (XLF), SPDR S&P MidCap 400 (MDY), SPDR S&P 500 (SPY) and Dow Diamonds Trust (DIA).

Though I was feeling good during the first part of the week, by Thursday the gains the market saw were wiped out with a hefty 280-point plunge in the Dow. What the market giveth, it taketh away.

I'm still holding on though. And according to a MarketWatch story last week, I'm really smart, or there are a lot of dummies along for the ride with me.

The five daily all-time trading volume records for Financial Select SPDR Fund were set in the last two weeks, suggesting investors are hoping that a bottom is near for financials, MarketWatch reported.

"The trading activity in the ETF has been "crazy" recently," Dan Dolan, director of wealth-management strategies at the Sector SPDRs, told MarketWatch. He said several times during the past two weeks, the financial ETF has seen the highest trading volume for any U.S.-listed security.

So I raise six aluminum cans to us, the smart investors. At least we'll have something to fall back on when it all comes crashing down.

Signs of optimism lured me back

2008-07-22T12:48:00.000-07:00

I re-entered the market Monday, taking small, equal positions in several ETFs that would give me a broad exposure to the market.

I'm not suggesting we're out of the woods yet by any stretch of the imagination, but some things seem to be encouraging.

The rally that took place during most of last week, whether a bear market rally or not, seems to be holding up. Today's close that pushed the Dow up more than 100 points in the last hour of trading was a nice surprise as well.

A lot of people have said that the current rally in financials is fake, and will not hold up. But I think the fact that Wachovia (WB) and Regions (RF) both announced they were cutting dividends to help shore up capital is a welcome sign. Wachovia also said it would not sell additional stock to raise capital, but would instead work through the credit crisis without an infusion from shareholders.

Yes, non-financial businesses are missing their earnings marks, but they were widely expected to do so. I've heard many a financial expert say that the beginning stages of the recovery from a market bottom happen when the bad news is still flowing. Don't know if that stage has begun, but don't want to miss it if it has.

The ETFs I entered were State Street Global Investors Financial Select Sector SPDR (XLF), SPDR S&P MidCap 400 (MDY), SPDR S&P 500 (SPY) and Dow Diamonds Trust (DIA). We'll see how it goes.

Brian

I have a touch of buy and hold too

2008-07-21T05:20:00.000-07:00

I just finished reading a book called “Simple Wealth, Inevitable Wealth,” by Nick Murray, an investing expert who received the 2007 Malcolm S. Forbes Public Awareness Award for Excellence in Advancing Financial Understanding.

That’s a mouthful, but Murray’s book is fairly straightforward in its approach and message, which is basically this: You cannot afford to not be in stocks. If you’re not in stocks and don’t continue to stay in stocks, you most likely won’t have enough money for retirement.

And this: Despite all the turmoil the world has seen, and regardless of whether Democrats or Republicans have been in office, over time, as in 10, 20, 30 years or more, the stock market as a whole has only gone one way — up.

By regularly contributing to a balanced set of mutual funds whether they be up or down at the moment — an approach called dollar cost averaging — one can slowly, but steadily, make his or her way to wealth.

The book was loaned to me by Fred Forbes, a local financial planner who is president of Financial Factors Inc. in Palmetto.

Forbes and I trade e-mails from time to time, and he’s often discouraged, and even concerned, by my approach of trying to catch upside momentum in the market and sitting on the sidelines when the markets are down.

He, like Murray, is a buy-and-hold investor who believes that time and proper diversification are the keys to making your money grow in the stock market.

The thing I think took Forbes a little by surprise is that I agree with him and what Murray had to say in his book.

But I also believe in my way, which is to limit losses and buy stocks only when they're moving upward.

Truth be told, however, I do own a trio of Vanguard index funds rolled over from a previous job. I don't fiddle too much with them and make contributions to them when I can.

So I guess I have a bit of the buy-and-hold in me.

I still remain out of the market at the moment, despite the nice move we had this week. I was tempted a few times, but I want to see what this week brings.

Oil prices fell $16 over the week, which brought some relief to stocks.

But as one analyst on CNBC said Friday morning, that could change with a whisper of trouble in the Middle East or threatening weather conditions.

Of course, reading Murray's book, it would seem that it doesn't matter what happens with oil prices, or the Middle East for that matter. Events will run their course and the stock market as a whole will again begin its steady pace upward.

In fact, given last week's action, with financials for once gaining some upward momentum, it may already have begun its upward march anew. Hope Forbes and Murray won't begrudge me too much though for waiting a bit longer to see.

Brian

Is this blood in the streets, yet?

2008-07-18T14:31:00.000-07:00

Wow, it's been really gloomy and doomy the past couple of weeks.

We can't hear enough about how the financials are going to continue to tank and the economy will continue to have a tough time even just puttering along.

Then all of the sudden, I wake from my financial news inundation stupor to realize that the Dow just tacked on 400 or so points in the last week and banks and financials had two pretty good days of upside as crude oil retreated.

I'm looking toward next week for a follow-through, but I am starting to think it might be time to nibble a bit on stocks.

They say the time to buy is when there's blood in the streets. And it sure looks that way right now. Then again, I thought that a couple of months ago, too, and it proved not to be the case.

But something Paul Elliot of The Motley Fool wrote Thursday struck me as poignant:

"If, like me, you like the idea of loading up on proven cash generators like American Express (AXP) and Starbucks (SBUX), or any of the two dozen other market leaders trading at bargain-basement prices, you want to do it when some clown on CNBC is shouting, 'There's a 10 percent chance we'll have a Depression! ... Kooks aside, this is the ugliest mood I've seen on Wall Street in 20 years of following the markets ... Does this mean we've hit bottom, and it's smooth sailing from here? No. But it does tell me that now is the time to buy stocks."

Brian

Nice moves, but can you do it again?

2008-07-17T14:39:00.000-07:00

It's pretty encouraging to see two nice 200-plus point moves in a row in the Dow.

Financials were some of the biggest movers, and this time it was up and not down for a change.

Could this mean that they've been fist-pounded into the dirt so much that they, and the market as a whole, have notched a bottom? Maybe.

I want to believe that's the case anyway, but after the market's close Thursday, Merrill Lynch & Co. reported a quarterly net loss of $4.65 billion, most of it from exposure to mortgage-related investments.

The Dow gained 484 points since Tuesday, a healthy move to say the least. But I need more convincing before I dive back in.

On his weekly market update podcast on his Web site, local trader James "Rev Shark" DePorre advises caution, despite the strong moves of the last couple of days. He notes that most bear markets will have that occasional rally that gives one hope. But often, the rallies aren't sustainable. He noted that the market is still precarious and people should take more time before taking long positions.

That sounds like good advice to me.

Brian.

Call the fire department, the building burned down

2008-07-16T07:22:00.000-07:00

Imagine that. After markets have been roiled by manipulating short-sellers and traders during our recent 20 percent decline, and two of the nation's largest home lenders, Freddie Mac and Fannie Mae, were on the verge of collapse, the SEC decided that maybe something should be done.

The SEC is moving to bar "naked" short selling of bank and brokerage stocks for at least 30 days, and maybe longer.

Short-selling involves borrowing stock from a brokerage and agreeing to buy it later, hopefully at a lower price. The investor pockets the difference between the borrowed and purchased price if the stock does, indeed, fall. But the furor in the markets have given way to massive waves of shorting, often involving shares being "borrowed" by more than one trader, without any type of contract in place.

This, SEC officials maintain, exacerbated downward momentum in the market. The SEC, according to the Wall Street Journal, is investigating whether Bear Stearn's collapse had much to do with short sellers spreading false rumors and driving down shares.

Critics of the SEC's move accuse the regulator of interfering with the free market system. Others argue that the short-selling action should apply to other publicly traded companies than just financial firms and banks.

"For heaven's sakes, they're the very ones we believe have been doing this ... to thousands of public companies," a lawyer who represents companies that have filed lawsuits pertaining to short-selling told the Journal.

Regardless, coming to the market's rescue now, seems like the fire department showing up at a house that burned down hours ago.

Brian.

How to back out of market's abyss

2008-07-14T05:14:00.000-07:00

We peered into the abyss Friday, dipping below the 11,000 level in the Dow. That's a 3,000-point drop from the Dow's high in October, in case anyone's keeping track.

It's pretty ugly, to say the least. Those who advocate a buy-and-hold approach to investing say that these are the best times to buy. Stocks are on sale, essentially.

My problem is, I don't know which ones are going to be marked clearance or be discontinued a year from now.

It was also discouraging to read the "Ahead of the Tape" column in the Wall Street Journal on Friday. In addition to discussing General Electric's (GE) dismal performance, it also discussed the overall performance of the market's S&P 500 benchmark over the last 10 years.

"Investors who put their money into the S&P 500 a decade ago have ended up with nothing, after adjusted for inflation and dividends, according to Merrill Lynch investment strategist Richard Bernstein."

Being in my 40s, I consider 10 years to be somewhat long-term from an investing standpoint. To think that an investment I made today would yield me nothing, and that I would only have 10 years or so left before retirement, is pretty scary.

As I've already written, I'm out of stocks for the time being. But certainly not forever. In fact, I have a couple of ideas bouncing around for safety and yield.

One of them is Southern Company (SO), which owns electric utilities in Georgia, Florida, Alabama and Mississippi.

The stock has a healthy quarterly dividend of 42 cents a share and its chart shows strong price stability over the past decade. It trades at 15 times earnings. Morningstar gives Southern Company 4 out of 5 stars and a fair value estimate of $41 a share, about five points above where it currently trades.

Another idea — and don't laugh — is a financial. It's US Bancorp (USB), a Delaware financial holding company that is a favorite of billionaire investor Warren Buffet.

US Bancorp trades at 10 times earnings and analysts say it was far less exposed to risky subprime loans that are currently weighing on many of its competitors. Morningstar gives it a 5-star rating and a fair value estimate of $41 a share, quite a bit higher than its current $25 range.

But remember, if price targets were a certainty, we'd all be millionaires.

Like Southern Company, US Bancorp also sports a handsome quarterly dividend of 42 cents a share. It's 10-year chart has been a bit more choppy than Southern Company's, however. Its 52-week range has been from $25.92 to $35.25.

Brian

Up and down we go

2008-07-10T13:42:00.000-07:00

Another up day today after Wednesday's ugly sell-off.

The new Apple (AAPL) iPhone with faster 3G wireless technology goes on sale Friday morning. As with the first iPhone, there's been a lot of hype and varied reviews on its performance and worth.

But Farnoosh Torabi of TheStreet.com took an interesting look Thursday at what the real cost of the iPhone is to a person's potential retirement fund. It's humorous and insightful.

I kind of want an iPhone, but I think I can wait.

Brian.

Market gets big bear hug

2008-07-09T13:59:00.000-07:00

If Tuesday had me second-guessing whether I should be sitting in cash, today took away all doubt.

Today erased the 152-point jump in the Dow on Tuesday, and took away a bit more for good measure.

Iran was shooting off missles, Cisco (CSCO) fell to near its 52-week low on a dismal outlook for next quarter and government-backed mortgage buyer Freddie Mac (FRE) fell nearly 24 percent on concerns that the company may need a capital infusion.

All this delivered 2 percent drops in the Dow, Nasdaq and S&P 500.

News Corp. Chairman Rupert Murdoch said today that he expects that it will take at least another year to get through the mess we're in, according to the Associated Press.

"I'm a bit of a bear," Murdoch said at an annual media conference in Sun Valley, Idaho hosted by investment bank Allen & Co. "I think there's more (bad news) to come and it'll take a year to shake out."

Bank of America CEO Ken Lewis echoed that year timeframe to MarketWatch, saying that the U.S. economy should start a gradual recovery in mid-2009, but that it "may feel like a recession" until then.

Nope, I feel good doing nothing right now. Hope everyone one else is doing OK, whether they're bailing or hanging tough.

Brian.

Nice rally Tuesday, but is there more left?

2008-07-09T07:05:00.000-07:00

I definitely felt a little left out sitting on the sidelines of Tuesday's rally. A friend of mine who has held onto Apple (AAPL) ribbed me a bit after it tacked on about 16 points in the past week.

But I still feel I'm doing the right thing sitting in cash at the moment. Wednesday morning's market was struggling to make it into the positive.

Oil's drop, coupled with Ben Bernanke talk about more shoring up of the financial markets, helped raise stocks Tuesday.

The jury's still out, however, as to whether oil's fall was just an overdue pullback or the beginning of a new trend. Many feel the financial news is still going to get worse.

I watch and wait.

Brian

Be wary of alternative energy stocks

2008-07-07T05:33:00.000-07:00

A poster to my blog asked the question of whether it was time to get out of oil stocks and start focusing on companies that are involved in alternative energy.

My short answer is, I don’t know.

But here are my thoughts: Oil stocks have been on a tear lately and crude prices have shown no signs of slowing down. Something tells me that’s got to end sometime. If it doesn't, then I'd better get my bicycle tire fixed.

With Congress investigating oil speculators and auto-makers being crippled by the behemoth SUVs and pickups they invested in so heavily and now can’t unload, I’ve got to think oil’s run is limited.

But there’s an abundance of investment professionals out there saying just the opposite.

Alternative energy stocks have already had somewhat of a run. Look at solar energy firm First Solar (FSLR), which ran from $74 to its current $250 a share in the past year. Lately when I look at First Solar though, it’s up 20 bucks a share or down 20 bucks a share on the day. That’s just too much volatility there for me, not to mention its price-to-earnings ratio is a whopping 101.

Usually investors consider a P/E of around 15 to 20 to be cheap.

John Waggoner, personal finance columnist for USA Today, wrote a piece in May about the "gamble" that investing in alternative energy stocks can be. He had the same concern about First Solar's P/E ratio and the still-emerging nature of most alternative energy stocks.

A major problem with the alternative play is that no one really knows which technology is going to rise to the top in the mix of possibilities. Look at ethanol, which was all the rage the last couple of years, but has lately come under scrutiny for depleting food supplies and consuming massive amounts of water in its production (some of these criticisms have been just as hotly contested and more is being done to create ethanol from non-food stock items like wood scraps).

If you had rushed in and bought Pacific Ethanol (PEIX) in January of 2007 when ethanol interest was peaking, you would have gotten in around $15 or $16 a share. The stock closed at a dollar and change Friday.

If you'd bought Verasun (VSE), another big player, you would have gotten in around $18 during the same period. It closed at $4.21 on Friday.

Waggoner advocated more pedestrian methods of investing in alternative energy, like General Electric (GE), which has a substantial wind turbine division, or Florida Power & Light (FPL), which has wind power operations throughout the country and is also heavily invested in solar power production.

Companies of that size have larger market capitalization and other business lines to fall back on while they're trying to knock an alternative fuel home run out of the park.

Brian

Short trading week ends on positive note

2008-07-03T13:59:00.000-07:00

Stocks rose Thursday, albeit on light volume.

The market closed early and will take a Fourth of July rest, which is exactly what I plan to do.

Hopefully the coming week will bring some good news for a change. Or maybe it should bring some bad news instead.

A lot has been written about the Chicago Board Options Exchange Volatility Index (VIX), which essentially gauges fear in the market based on the amount of options changing hands. Options are bought more heavily in turbulent markets because they can offer insurance against wild price swings. Options give the purchaser the right to buy a stock at a higher or lower price (a call or a put, respectively) at a time in the future.

Without going into specific benchmark numbers for the VIX, which you can explore to your heart's content here, some market-watchers have expected more of spike in the index given the downward action of late. They argue that we need some more pain before we can begin to solidly head upward.

"I think we need a day where everyone just has the fear of God, so to speak, put into them before we can start to declare this a bottom," Joe Kinahan, chief derivatives strategist at online options firm thinkorswim, told the Wall Street Journal on Thursday. "Until people can't take it anymore and are willing to take any price to sell their stock, or pay any price to buy a put, it's not over."

I went into some short-term CDs Thursday, so you you see where my fear threshold is.

Brian.

Sleeping like a baby

2008-07-02T13:38:00.000-07:00

I rested well last night and no doubt will tonight too after exiting the market Tuesday.

It was more of the same this afternoon, with the Dow and the Nasdaq officially declared as entering a bear market — that definition being when an index drops 20 percent from its high.

General Motors (GM), already more than 76 percent off its year high, fell 15 percent more on Wednesday and a Merrill Lynch analyst said bankruptcy for the auto giant was "not impossible."

Oil was on the march again and investors are waiting to see the results of the government's employment report due Thursday morning. I'll be watching it on CNBC with a casual air of non-concern.

Buy, buy buy! Sell, sell, sell!

Viewers of Jim Cramer's "Mad Money" are familiar with those recorded shouts from his panel of buttons every time he pitches or pans a stock.

A lot has been said of Cramer's penchant for guiding his viewers to the best stock picks. For all his supporters, Cramer also has plenty of detractors.

One of them posted an interesting video on YouTube that shows Cramer slamming banks and financials right after advocating buying them. After dogging oil stocks, the video shows Cramer touting them shortly afterward.

It's interesting viewing. I have to credit the Seeking Alpha Web site for me finding the link.

Brian.

Fleeing the jaws of the bear

2008-07-01T11:06:00.001-07:00

You've heard this from me before, but I am out of this market.

Managed to keep most of my money intact. Things are just too crazy at the moment.

I did have a nice run-up with oil driller Atwood Oceanics (ATW), gaining about 18 percent on it. But it started acting badly today, as did most everything else. It seems time to sit on the sidelines for a while.

Everyone's waiting on "capitulation," the point at which things get so bad that the market turns and heads upward. I'm going to have to see some strong evidence of it once it does come around. Things just can't look much more bleak.

You bet I'll be back, but I need a breather.

Right price, wrong denomination

A reader pointed out to me that quotes I used in a recent blog for the stock Seadrill (SDRL) were in foreign currency, rather than dollars. The stock is currently trading in the $30 range. Sorry about that.

Brian

Alternative investments may bring relief from bear's bite

2008-06-30T05:13:00.000-07:00

I wracked my brain Friday afternoon trying to figure out something positive to say about the current condition of the stock market.

But my anxiety-plagued mind could only come up with one concrete thought: This market stinks.

Tom Kubik, of Kubik Financial Services in Bradenton, had some other descriptors, but we both agreed they were better left unprinted here.

Kubik, along with many other investors and financial pundits, is convinced we are in a bear market. Energy costs, the devalued dollar and the uncertainties inherent in an election year are all weighing on stocks, Kubik says.

That's why he is steering some of his clients toward alternative investments like oil and gas services and real estate investment trusts.

These investments aren't merely publicly traded oil stocks and REIT funds. They actually involve investment in ownership shares of oil-drilling operations and publicly offered REITS that don't trade on the market.

If you haven't heard of these types of investments, Kubik says, there's a reason: Most larger investment firms don't deal in them.

The oil and gas programs in particular have had a substantial rate of return, Kubik says, though he declines to give a percentage for publication because of regulatory compliance issues.

"They gather money from investors, go out and drill the well and get the gas," Kubik says. "These programs, within six months they've got gas going to the market."

The investments also come with a tax break because of oil depletion allowances, Kubik says. He doesn't recommend his clients allocate more than 20 percent of their portfolio to alternative investments, however, because they are not as liquid as stocks or other investments.

There also are income and investable asset requirements for many alternative investments like these, Kubik says. "Most of them require that you have between $45,000 to $75,000 in income per year," Kubik says. "If you are making $45,000 a year and you have $45,000 in the bank you qualify for a lot of these. The clients I have in oil and gas just want to kiss me on the mouth. I won't let them because my wife would get mad."

Reader feedback

Last week I asked readers to let me know what stocks they're having luck with.

Steven Schneider of Manatee County e-mailed me this one: "I am overweight in SDRLF. Seadrill is an offshore drilling company run by Norwegian shipping tycoon John Fredriksen and I believe it is poised for a great future. It currently boasts one of the largest drillship fleets in the world with more new builds entering service this year and in 2009 and 2010. These new builds are already under contract and will start earning money under long-term contracts as soon as they hit the water. "The only downside is that Seadrill only trades in Oslo, Norway so it can be a little cumbersome to buy and sell."

Seadrill closed up $1.75 on Friday to $154. Its 52-week share price range is $95 to $183.75.

Remember that investing in any stock can lose you money. Any mention of a stock in this blog is not an endorsement to buy it.

Breaking up is hard to do

It's over between me and Apple (AAPL). She's been good to me over the last year or two, but the relationship has been up and down lately and I couldn't take it any more. And it's for real this time. I'm not going back.

Seriously, I committed the sin of falling in love with a stock and Apple has been my biggest crush. But its up-and-down trading lately has been too frustrating and I'm looking for a new thing.

It may go on and climb into the 200s, but I don't want to wait around. I also unloaded Chart Industries (GTLS) and EnerSys (ENS) on Friday, locking in fair profits on them. I'm holding on to oil driller Atwood Oceanics (ATW), which had a stellar day Friday, finishing up $6.50. I'm also keeping fertilizer company Agrium (AGU). It was up nearly 3 points on Friday.

Brian

Eyeing the exits

2008-06-26T08:19:00.000-07:00

Things are pretty excruciating right now. My only shining star is oil driller Atwood Oceanics (ATW), but that's about it.

Keep thinking I should have taken that brief rally yesterday after the Fed's announcement to get out of this choppy, depressing, gut-wrenching, downtrodden market.

But things are going to get better, right? Any day now, probably the very day I exit all my positions and seek the safe, anxiety-free comforts of cash, the market's going to shoot up like a rocket. Right?

That's what the nagging little voice in my head says, but my gut is telling me, "Sell, sell! You idiot, what are you doing? You're violating your discipline and holding out hope in a hopeless market that could very well have much more downside to come."

Considering I'm only a day or two from canceling out my gains for the last several months, I'm thinking I should listen to THAT voice instead.

I'll let you know which voice wins out.

Brian

Taking stock of sells

2008-06-24T13:45:00.000-07:00

So as I've written about before, I usually ascribe to the rule set forth by Investor's Business Daily that states you should sell a stock once it's 8 percent below your buy point.

I touched on that topic with my last post about stop-losses.

However, on more than one occasion I've kicked myself for doing so after the stock I eliminated proceeded to take off afterward. Then again, there have been other times when I've thanked myself for unloading a stock that's crossed that 8 percent threshold.

But still there's that nagging question of whether I'd be better in some cases holding on. Waiting it out.

So I decided to take a look at recent sells to see how I would have fared if I had kept them. Prices were as of this past Sunday:

Stock Date and price sold Price now % + or -

BKC 5/23/08- $27.51 $28.45 +3.41

CHL 5/23/08- $78.52 $67.01 -14.70

RRC 6/02/08- $63.71 $62.60 -1.80

PH 6/05/08- $78.56 $75.99 -3.27

JEC 6/12/08- $86.43 $87.35 +1.10

RIO 6/11/08- $34.80 $34.81 +.029

EWZ 6/11/08- $90.43 $89.10 -0.150

KEX 6/12/08- $50.53 $52.74 +4.37

Total percentage +/- -2.65

Keep in mind that a negative percentage is desirable in this case, since it represents how much I would have lost had I held on to the position.

The standout in this case is China Mobile (CHL), which I'd be down in almost 15 percent had I continued to hold it.

Overall though, I saved myself only 2.65 percent, and once I include commissions, I have to wonder if I might be over-trading. I'd probably feel better about it if that total loss percentage was at 5 or 6 percent.

An interesting exercise, nonetheless.

Brian

Market's volatility may call for stop-losses

2008-06-23T05:31:00.000-07:00

The market has been no friend to most lately. This week, the Dow lost more than 460 points and closed below 12,000 for the first time since March.

With that kind of action, you may be looking for ways to limit downside risk.

The Wall Street Journal ran an interesting piece last week about using stop-loss orders to keep an investor from getting hit with a surprise drop in a stock's price.

Essentially, stop-loss orders set a price at which shares of a stock are automatically sold. Say you want to keep any loss on a stock to 10 percent. If the stock was trading at $35 a share, you'd want to enter a stop loss order that would trigger a sale once the stock price hit $31.50.

Some people, myself included, perform this function in their heads rather than physically entering the stop-loss order in their trading platform or through their broker.

I usually look at an 8- to 10-percent loss as a time to cut and run, but there are times when I've violated that rule and let a stock dip a little more before I sell — but not much.

Todd Harrison, a contributor to MarketWatch who also writes for the Minyanville.com financial Web site, is a big believer in limiting downside risk. He phrased that philosophy fairly eloquently in a March piece titled, "Ten Tips for a Tough Tape."

"Regardless of the set-up, an exit strategy must exist before you pull the trigger and initiate risk" he wrote. "And never rationalize your positions. The definition of an investment should never be a trade gone awry."

But as the Journal piece pointed out, stop-losses can also backfire. A normal correction in the market can stop you out of a position that may proceed to soar.

Short positions suggest financial sector still risky

The 24/7 Wall St. site (www.247wallst.com) reported that short sellers, investors who bet that stock prices will drop, were piling into banks and financials this week.

There's been a lot of talk lately about how the financial sector can't get much worse and we must be approaching the bottom in banks and financials. But the writedowns keep coming and the picture for the sector seems none the rosier.

"The perception was that the financials would start to turn things around by this point," analyst Ashwani Kaul of Thomson Reuters told the Journal on Friday. "That turnaround hasn't happened."

The 24/7 St. piece said short interest (the number of shares sold short) in Wachovia (WB) had risen to 177.3 million shares as of June 15. The stock's short interest was 151 million last month, according to Yahoo Finance.

Short interest in Citigroup (C) rose to 135.7 million, about 20 million shares higher than last month.

Brian

So much for a relaxing weekend

2008-06-20T14:59:00.000-07:00

So much for holding that line as I wrote in yesterday's posting.

We broke firmly through that 12,000 Dow level today and most everything I owned, with few exceptions, was in the red.

I'm getting sick of playing the up-down game with Apple (AAPL) and came close to bidding it farewell this afternoon.

I still feel a better direction for the market is coming, but that's probably foolish on my part.

I have to confess, I've checked my discipline a bit. I was going to head for the exits once the Dow plowed through 12,000, but I'm holding tight.

Haven't hit any stops on what I hold, so I'm going to see what Monday brings. Hopefully not more of today's action.

Brian

Holding that 12,000 line

2008-06-19T13:47:00.001-07:00

Whew. Thought we were going to lose that 12,000 mark in the Dow today, but managed to hang on, albeit barely.

Even after dipping below the 11,999 mark a bit during the day, oil's $4.75-a-barrel drop during the session helped give some relief to stocks, letting the Dow finish the day at 12,063. The Nasdaq also put in a good showing, gaining more than 1 percent by the close.

Let's hope Friday brings more of the same. I need to relax.

Brian.

Market drops relative, or are they?

2008-06-18T13:35:00.000-07:00

I about swerved off the road today when I got a text message from my son that read: "Did u c the dow jones?"

Holy cow, I thought. If my 11-year-old is texting me about the Dow, there must be something horrible going on. It must be some gut-wrenching 600- or 700-point drop plastered across the TV, I thought.

Being on the road without wireless, I called my son with a stone in my gut.

"It's down 96 points," he said.

"Oh, that's a relief," I chuckled, thinking things weren't that bad after all, and encouraged that my son was taking an interest in the market at such a young age (that will give him that much earlier of a start on developing ulcers, obsessing about earnings, and boring his wife to death with it all one day).

But my reaction to his news just goes to show you my mindset, and probably that of a lot of others who are sticking with this market lately. To think I actually considered a 100-point drop in the Dow not all that bad is in itself, well, bad. No?

Of course, it continued to get a lot worse for the day as we revisited a three-month low in the Dow, which shed 131 points to close down 1 percent. Only about 30 points separate us from that 11,900 mark in the Dow I was dreading us revisiting.

FedEx (FDX) reported a bleak outlook for next year based on the economy and soaring fuel prices. News that Fifth Third Bancorp (FITB) was cutting its dividend 66 percent, from 44 cents to 15 cents, and Morgan Stanley's (MS) quarterly profit had dropped 60 percent also helped fuel the Dow dive.

I'm still hanging in there, but the market has my full attention after today.

MarketWatch ran an interesting, albeit tad esoteric, piece today by occasional contributor Todd Harrison that stresses the importance of managing risk, versus chasing reward, during these uncertain market times. It's an interesting read and worth checking out.

Brian.

When good news shoots itself in the foot

2008-06-17T13:55:00.000-07:00

I almost cheered this morning watching Squawk Box when Goldman Sachs reported second quarter earnings that blew away analysts expectations.

Finally, I thought, some good news from a financial firm. Just the thing to lift the markets.

Well, there I went thinking again.

It was good that Goldman beat expectations, but then its own analysts went on to say that the banking industry as a whole faced mounting losses in the third quarter and might have to raise as much as $65 billion in capital.

That, coupled with news of rising inflation and housing starts at a 17-year low did its magic to push indexes downward.

But it wasn't all bad.

Fertilizer company Agrium (AGU), which local trader James "Rev Shark" DePorre recommended in my last post, and which I shamelessly bought for myself, was up five bucks and change — nearly 5 percent.

Apple (AAPL, I own), which has been clawing to regain the 180 mark for the last week or so managed to do it today. It was up $4.59, or 2.6 percent, to close at 181.43. An RBC Capital Markets analyst suggested Monday that Apple would sell 14 million iPhones in 2008 — about 4 million more than the goal set by the company.

Also, Apple announced T-Mobile is going to carry the iPhone in Germany.

Brian.

Local trader: Bear market, but opportunities exist

2008-06-16T05:12:00.000-07:00

Without question, this has been a choppy market lately. Though the tail end of last week brought some more optimistic data — a strengthening dollar and falling crude oil, for instance — the jury's still out on whether this market is going lower, or just taking a breather before starting a new rally.

I caught up with trader-in-residence, James "Rev Shark" DePorre, to get his thoughts on where things are headed. DePorre, who lives on Anna Maria Island, released a book in November titled, "Invest Like A Shark: How A Deaf Guy With No Job And Limited Capital Made A Fortune Investing In The Stock Market."

He's a featured writer on the financial Web site TheStreet.com and none other than CNBC's "Mad Money" host Jim Cramer penned the forward to his book, which has recently been translated into Chinese.

DePorre's convinced we are in a bear market and investors are going to have to be on their toes and selective in what they buy.

"What we have going on in the market right now is a classic bear market," DePorre said. "We had a bounce from the lows in March until last Friday, and that was a pretty classic bear market bounce. People were believing that the worst was over. I call it "the worst is over" rally. And then we had a sudden spike in unemployment, we had gas prices ramping up, and now we have some real concerns about inflation."

Still, the volatility of this market doesn't compare to some of the worst periods DePorre has seen, including just after the dot.com bubble burst in 2000 and during the summer of 2002 when "we had just day after day of new lows," he says.

Despite the challenging market, DePorre believes there is still money to be made in certain "pockets of opportunity," particularly in the oil and fertilizer sectors. Although those sectors have exploded with growth over the past year, DePorre believes there is more room to run.

"If you stick with those groups, I think you'll be able to shield yourself somewhat from the weakness in the broader markets," DePorre said.

In oil, DePorre likes BPZ Resources (BZP) — yes, the Z and P are switched in the ticker symbol. BPZ has a license to begin producing oil on approximately 2.4 million acres in Peru. The stock has more than doubled from around $11 a share in January to the $26 range on Friday.

As for fertilizer names, DePorre favors Potash Saskatchewan (POT) and Agrium (AGU). Potash has risen about 54 percent since January and currently trades in the $225 range. Agrium tacked on about 45 percent during the same period and is currently trading around the $103 range.

"The (earnings) numbers there are really great and I think the numbers there are going to continue to grow," DePorre said.

DePorre offers a free weekly market review podcast on his Web site.

I want your stocks and I want them now

How are you faring in this market? I want to know. I also want to know what's working for you. If you've picked a winner that's making you a bundle, shoot me an e-mail (Bneill@bradenton.com) or post a comment and let me know.

Not only do I want to share it with readers, but I may want to jump in myself.

Brian

Market ghouls kept at bay on unlucky Friday

2008-06-13T14:03:00.000-07:00

For a Friday the 13th, it was a pretty darn good day.

The Dow and S&P 500 were up roughly 1.5 percent each and the Nasdaq was up over 2 percent.

A triple play of declining oil, a strengthening dollar and inflation that was in line with expectations helped push the market higher. There is still a lot of lost ground to make up, however.

I got some good news Thursday on one of my positions, EnerSys (ENS). The maker of industrial batteries reported that fourth-quarter income rose by 84 percent and sales jumped 41 percent.

EnerSys was one of those stocks I picked because it had been rising on higher than average volume. Let's see if that momentum holds.

Brian.

Sun shining on Sun Hydraulics

2008-06-12T13:40:00.000-07:00

It was a slightly better day today, with the emphasis on "slightly."

The Dow had a nice rally of around 180 points at one period during the day, but gave up most of that to close up 57.81. The Nasdaq and S&P 500 also logged small gains for the day.

Everything held up better than I expected considering the apocalyptic news that was permeating the markets Wednesday, from more bad news on the financial front, to rampant inflation in China and other developing countries.

Apple (AAPL, I own) however, was another story. Rumors that a gaunt-looking CEO Steve Jobsmight be sicker than he's letting on shoved the tech giant down 4 percent. I'm not going into the whole story, but CNBC's Jim Goldman gives a good overview of the brouhaha here.

I blogged recently about the analyst love Sarasota-based manufacturer Sun Hydraulics (SNHY) was getting recently. Well the company that makes hydraulic components for industrial machinery and equipment was featured today in Investor's Business Daily's The New America section, dedicated to fast-growing and innovative companies.

A spokesman for the company told IBD that Sun has seen steady demand for its components destined for oil platforms and mining operations.

"We can't pull metals and ores and gases out of the earth fast enough," investor relations spokesman Rich Arter told IBD. "Hydraulics are used in all this stuff."

Like nearly any business these days, however, some analysts have said that Sun could be impacted by a global downturn, according to the article.

Brian

Red, red whine

2008-06-11T13:53:00.000-07:00

Bwarrraggghh.

That's the sound of me retching over all of the horrible, horrible action of late.

I hate to dwell on bad news, but that seems to be all that's coming down the pike. The Dow gave up 200 points again today and I watched more of my gains disappear. The only stock that wasn't highlighted red today for me was Chart Industries (GTLS) in the oil and gas sector. And it wasn't up much.

Investor's Business Daily today suggested investors might find inspiration and hope in a bottle. No, the paper didn't suggest drinking away your sadness over the market. But it did suggest that people are reluctant to give up their cocktails, regardless of how bad things get (and maybe because things are bad). And that's translating into profits.

Headlining that thesis this afternoon was confirmation that Belgian beer company InBev (INB.BR, owner of Beck's, Stella Artois and Hoegaarden) has made a bid for Anheuser-Busch (BUD) for $65 a share.

Brown-Forman, maker of Jack Daniel's whiskey, also posted a fourth-quarter profit of 81 cents a share, a 45 percent increase over last year, according to Investor's Business Daily.

Sales of the potent potable jumped 12 percent to $772 million.

Brian

Boredom rally trudges on

2008-06-10T13:41:00.000-07:00

It was another day of mostly the same. The Dow eked out a small gain, but nothing to get excited about, particularly considering its 400-point drop on Friday.

Apple (AAPL, I own) recovered some of its blood loss from Monday, even as various financial sites were desperately trying to pick apart its newly unveiled faster iPhone. Criticisms ranged from the new iPhone's cheaper price ($199 for an 8 gig model) having the potential to cut into iPod sales, to speculation that businesses are still giving the smart phone the cold shoulder.

Some of those criticisms may be warranted. It's just funny to see the Mac-maker's shares climb despite all the nit-picking. It gained 2 percent for the day to close at $185.64.

Coca-Cola (KO) got a nearly 4 percent lift from an upgrade from hold to buy by Deutsche Bank. Financials like Citigroup (C) and JP Morgan Chase (JPM) also fared well for the day.

For me though, impatience is building. I'm starting to think I'd be better off in a CD with things stuck in this up-and-down range like they are.

In my portfolio, Jacobs Engineering (JEC) is nearly 8 percent below where I bought it, meaning I will probably bid it farewell on Wednesday unless something miraculous happens.

White-knuckle roller coaster ride

2008-06-09T11:42:00.001-07:00

My stomach feels like I'm sitting at the top of a roller-coaster about to make its furious plunge downward. And I don't like heights, so that's not a good feeling.

This market is so difficult to get a read on. And Apple (AAPL, I own) has made me particularly jittery today with its intraday plunge of more than 9 points before regaining some of that loss later on in the day.

Once again, rumors and speculation pummeled the stock in advance of CEO Steve Jobs' remarks at Apple's Worldwide Developers Conference in San Francisco. Some message boards speculated that Jobs wasn't going to announce a faster, 3G iPhone as had been anticipated.

Well guess what? He did. The new iPhone will allow five hours of talk time on a charge and also have GPS, according to news reports. This wasn't the first time that shares in Apple see-sawed in advance of a Jobs-helmed product unveiling.

The biggest story on Wall Street, however, still seems to be oil, and its continued impact on consumers' pocketbooks. On Monday, gas hit a national average of $4.02 a gallon.

Market's rip currents left me black and blue

2008-06-09T04:38:00.000-07:00

What the market giveth, the market also taketh away.

And boy, did it ever on Friday.

My hands have turned black and blue from sitting on them, but Thursday's nearly 2 percent gain in each of the three major indexes had me feeling pretty good. The move came on better-than-expected retail sales and talk of Verizon (VZ) acquiring Alltel.

Then came Friday, with its rip currents of an $10-plus spike in oil — the highest increase ever in a single session — and a 5.5 percent unemployment rate, which was the worst since 1986. The Dow tumbled more than 400 points and took us ever closer to that dreaded 11,900 territory last seen in March (we're still 200 or so away from that level, but another Friday like this past one can close that distance in nothing flat).

I won't be sticking around for that. But I am staying put for now.

Why?

Because things haven't been all that bad.

What did that lunatic say, you ask.

Before you call me crazy, I'll tell you that my portfolio still ended Friday just over 9 percent in the black. And despite all the bad news, there's also a lot of positivity from pro investors and economists.

Edward Yardeni of Yardeni Research is one who thinks all is not so bad. He told Money magazine in the May edition that he expects a short, shallow recession in the first of the year, with a recovery starting by fall. Yardeni also noted that growth stocks are the cheapest they have been in a decade.

I believe a turnaround is coming.

Still, there are other predictions from various "permabears" that will have you trembling under your bed. One of them, whose name I can't recall, had us trading solely in gold in coming months because all other currency and stocks would be worthless. Yikes.

But I won't be walking around with blinders on. If the Dow treads on that 11,900 threshold this week and other indexes continue to fall, I'll likely head for the exit.

R.I.P. Mock Portfolio

When Taking Stock was born in December, my editors wanted to include a theoretical portfolio of six stocks for which we'd track the performance throughout the year.

Problem was, the portfolio was static, and not the way I would trade.

As of Friday, we were down about 5 percent on the portfolio that included Boeing (BA), Centex (CTX), Cisco (CSCO), Devon Energy Corp. (DVN), Florida Power & Light (FPL) and Wachovia (WB). We had lost more than 50 percent on Wachovia, and I would never hold on to a stinker like that.

We were also down more than 20 percent in both Boeing and Centex. Again, I probably would have cut those at 8 percent or 10 percent down.

It just doesn't make sense to keep saying that Devon Energy is doing really, really good (it gained us over 40 percent in fake-dollar gains) and Wachovia is doing really, really bad.

So what I'm going to do instead is periodically list the stocks I own, as well as recent buys and sells. I've been doing a little bit of that all along, anyway. I'll do this informally, however, rather than in a portfolio we run each week.

It bears noting that what I buy and sell is not an endorsement of doing either. YOU MAY LOSE YOUR MONEY if you do what I do. I am not a financial adviser or professional. Just a guy who loves the market and likes to trade.

With that disclaimer out of the way, here is what I currently own: Apple (AAPL), Chart Industries (GTLS), EnerSys (ENS), Jacobs Engineering (JEC) and Oracle Corp. (ORCL)

Quote of Note:

"Petrobras (Petro Brasileiro,PBR) could become the biggest stock in the world." — Ken Heebner, head of the Capital Growth Management Focus Fund (CGMFX), in the current edition of Fortune, which dubbed him "America's Hottest Investor" for his 24 percent annual return over the past decade. Petrobras, a Brazilian oil company, recently announced two major offshore oil discoveries.

Brian

Readers sound off on oil

2008-06-02T05:09:00.000-07:00

I received some thoughtful feedback from the last installment of Taking Stock when I posed the question of what should be done about the current situation regarding the price of oil.

Jim Lansinger of Bradenton wrote: "I think the last approach that should be used is to do anything to reduce what little finite oil reserves are left at this time. Restricted areas should not be opened to allow gargantuan vehicles to be driven for another couple years — what then? … We need to get very serious about alternatives. There seems to be viable alternatives (like making gas out of coal, developing hydrogen, better batteries, smaller cars, etc.) out there and we will need all of our current reserves before we get there, therefore we can't encourage increased consumption now by bringing down the price."

Donald Sjaardema of Bradenton wrote: "I think we have had our head in the sand too long. Let's get on with drilling wherever oil is. We need to get independent on energy. Also build refineries and nuclear energy. We are only hurting ourselves by delay. Rarely are there oil spills from drilling. Most are from tanker ships. Look also at the jobs we can create."

Kenneth Guy of Parrish offered suggestions like relying more on alternative fuels, raising the Corporate Average Fuel Economy (CAFE) standards and examining more closely the decision not to drill in restricted portions of the United States.

Guy also suggested reducing an energy source he believes is too abundant: "Unfortunately, the solutions offered here will not work unless we ‘cap’ the escaping ‘methane gas’ emanating from Washington, D.C. It has been almost 35 years since the OPEC oil embargoes of the 1970s. Each administration since then has blamed the previous administration for a ‘lack of an energy policy.’ A large dose of petty partisan politics, on both sides of the aisle, and not a trace of leadership has delivered us to the point we are today."

Up, down, but mostly sideways

Not to beat a dead horse, but oil, which has governed much of the market's action of late, eased back a little this week, giving stocks some room to breathe. Not much though. A better-than-expected GDP report that suggested the economy is better off than originally thought and somewhat upbeat consumer sentiment data also added some catalyst for the bulls.

But mostly the market's been moving sideways, with little conviction either way.

On Friday, semiconductor firm Marvell Technology Group (MRVL), communications firm Harris Corp. (HRS) and oil and gas explorer Penn Virginia Corp. (PVA) topped Investor's Business Daily's online list of stocks being bought on unusually high volume, which suggests funds and institutions are taking positions in those stocks.

Monitoring big volume, whether through Investor's Business Daily, the Wall Street Journal, or various online sources, can be a way to ride the coattails of those funds and institutions for quick gains.

I recently culled EnerSys (ENS), a maker of industrial batteries, from Investor's Business Daily's high-volume list and I am up about 7 percent in it. Of course, it would be foolish to think that works every time. Otherwise, I'd be a millionaire by now.

Stocks to save mankind

Jim Cramer of CNBC's "Mad Money" has been on a kick lately about "new tech" stocks, which he and "The Big Idea" host Donny Deutsch later dubbed "mankind stocks."

Forget the tech that's producing the next "Grand Theft Auto" game, Cramer says, and instead, focus on technology that's going to change the face of the planet. Tech like wind power, water delivery and alternative energy.

Here are a couple of his picks: Flowserve Corp. (FLS) and Robbins & Myers (RBN) are both plays in the water, wastewater and global energy sectors. Cramer also likes Woodward Governor (WGOV) and Trinity (TRN) in the wind power sector.

Quote of note

"It would be great to get out of stocks at the high and jump back in at the low. But in the 55 years in this business, I have never met anybody who knew how to do it." — John Bogle, founder and former CEO of the Vanguard Group, quoted in the May issue of Money magazine.

Mock portfolio performance

It's time to revisit how our mock portfolio of six stocks is faring. I let it slip last week when I went on vacation.

But actually, it might be best to let it slip.

We're pretty much flat and our only saving grace continues to be Devon Energy Corp. (DVN), which is keeping us afloat with a 40 percent gain. Homebuilder Centex (CTX) was starting to show promise recently after breaking into positive territory for us in early May.

But support wasn't there and we're now down nearly 10 percent on it.

A lot of people have been suggesting now is the time to enter homebuilders and financials, but the performance of Centex and Wachovia (WB), which sits at a nearly 45 percent loss in our portfolio, might suggest otherwise.

The mock portfolio is published each week in the Bradenton Herald.

Brian

Will oil continue to hold stocks captive?

2008-05-28T06:17:00.000-07:00

Sell, sell, sell. That was the rallying cry this week, and it just makes me sick. Things were running smoothly, and I had picked up about 12 percent in the last two months or so in my own portfolio.

That gain was swiftly knocked down to 4 percent as of Friday. It didn’t matter that the Federal Reserve Board in its April 30 meeting said the worst of the credit crisis is likely behind us.

We now have a new crisis to focus on: Oil. Crude oil futures continued their geyser Friday, hitting in the 130s. Concern about the rising cost of a gallon of gas and the impact of energy prices on manufacturing and retail continued to push stocks down.

After President Bush basically got the brush-off from the Saudis (who pay about 50 cents per gallon of gas) during his recent visit to plead for more of the goopy, black stuff, some eyes are turning to our own fertile grounds to drill.

Why not open up restricted areas in the United States to tap our own oil, rather than be held hostage by oil producers abroad, proponents argue. But others are just as quick to point out our refusal to stop driving gargantuan vehicles that don't even get 20 miles to the gallon and slow adopting of alternative energy sources as the true root cause of our dilemma.

What do you think? Shoot me an e-mail. I'd like to hear.

Shine coming off solar?

Speaking of alternative energy, The Wall Street Journal’s "Money & Investing" section May 22 carried the headline: "Solar Stocks: Hot Enough To Get Burned." In the article, writer Mark Gongloff argues that solar stocks may be fixing to get squashed like ethanol equities have.

The reason: both sectors are tied to commodity prices.

Ethanol has been hit by corn prices, as well as environmental and food price issues that have nagged at the fuel source’s sustainability. Solar is largely dependent on silicon for photovoltaic modules used to generate energy. Silicon prices have also been soaring. Gongloff notes Pacific Ethanol's (PEIX) fall from grace. It was trading in the 30s in 2006, but is now less than $5 a share.

I blogged back in mid-December about how some were starting to question the sector’s run. Since that time, First Solar, the leader in the field, tacked on another 70 points to reach an all-time close of $311.14 on May 16, according to Yahoo Finance.

But the clouds moved in this week as Friedman Billings Ramsey downgraded First Solar to underperform on concerns that its profit margins were set to shrink. First Solar fell more than 6 percent to $279 and change on the news.

As for which sector — solar or ethanol — has the best chance of continuing to deliver the love to shareholders, Gongloff comes down on the side of solar. "Both industries depend heavily on government subsidies," he writes. "But solar seems less likely to fall out of public favor than corn ethanol, which has contributed to soaring food costs. Solar is cleaner and getting cheaper."

Local stock does good

Sarasota manufacturer Sun Hydraulics (SNHY) has been getting a lot of praise recently in the financial press. The stock has recently ranked No. 1 in "overall" and "fundamental" performance categories in Investor's Business Daily.

Sun Hydraulics manufactures hydraulic valves used in industrial, agriculture and other applications. Its three-year earnings growth rate is an impressive 34 percent. An investing rule of thumb is to expect a company's earnings to grow by at least 10 percent, if not 20 percent a year. Zacks ratings recently placed a "strong buy" rating on the stock.

Brian

Are your ideas as good as mine? See my brain dump

2008-05-19T05:17:00.000-07:00

This installment of Taking Stock is all about buying ideas.

I'm doing a mind dump of everything that's been catching my eye lately as the market starts showing more and more signs of staying up.

First stop is Brazil. Brazilian stocks were already hot given the rampant growth in the country. But Standard & Poor's Ratings Services recently upgraded Brazil's debt rating to investment grade. That clears the way for large institutions to invest in Brazilian companies who were barred from doing so before the debt rating status.

Brazil's economy is growing at about 5 percent, according to the Wall Street Journal, and the country is flush with cash. Its middle class is growing and it's about to become a net creditor nation (meaning nations owe it money and not the other way around) for the first time in history, according to the Journal.

Ideas:

• Banco Bradesco (BBD). The largest bank in Brazil has 11,000 branches and 31 million clients, according to Morningstar, which gives it three out of a possible five stars and a $26 fair value estimate and a suggested sell point of $39. It's currently trading at about $23 and has been treading water the last few weeks. If you're a price-to-earnings ratio guy, you won't like its P/E of 73, higher than the max of 15 or so usually preferred by value investors.

• Companhia Siderurgica Nacional (SID, I own). In the top three of Brazil's steel producers, Companhia Siderurgica Nacional is seen supplying Brazil's burgeoning growth as well as demand for metals from countries like China and India. Morningstar gives it four stars, a fair value estimate of $69 and a suggested sell point of $103.50. It currently trades at about $50. Its P/E is 52. I got into it about a month ago and have picked up almost 12 percent.

Another growth space may be water, something a lot of us take for granted, but is growing ever more precious because of droughts and ever-increasing populations.

Ideas: • Veolia Environment (VE). Founded in France in 1853, the company provides drinking water to about 67 million people. Morningstar gives it five stars, a fair value estimate of $94 and suggested sell point of $122. It's currently trading at around $72.

• ITT Corporation (ITT). Though it also makes military equipment, ITT specializes in water treatment and purification and is the world's largest producer of pumps used in the transfer of water. Morningstar gives it four stars, a fair value estimate of $83 and a suggested sell point of $107. It currently trades at $66 and has a P/E of 18.

Where I am

Within the past month, I've gotten fairly committed to the market again. With people backing off the recession mania (witness: May 14 Wall Street Journal headline: "Recession? Not So Fast, Say Some") and the Nasdaq poking above its 200-day moving average this week for the first time this year, I am emboldened (at least until it blows up in my face).

These are the positions I currently hold, ticker symbols only, because I'm tired on Friday evening and want to go home to a cold beverage. AAPL, GTLS, CHL, ENS, JEC, ORCL, RRC, V. I'm up about 12 percent.

Brian

Coming to grips with gambling side of investing

2008-05-12T05:41:00.000-07:00

CNBC's "Squawk Box" wrapped up in a strange place Friday: At the poker table.

Guests David Einhorn of the Greenlight investment firm and Neil Chriss of the Hutchin Hill hedge fund were taking part in a friendly game of poker to demonstrate the similarities between investing and gambling. Einhorn and Chriss have both ranked highly in various poker tournaments.

One of the hosts asked Einhorn how much luck was involved in gambling versus investing.

"I think about the same," Einhorn responded. "You look for where you have an edge and a calculated interest and you put your chips down and found out what the luck factor is."

This isn't the first time that I've seen gambling compared to investing. In March, the Wall Street Journal ran an article featuring Bill Gross, managing director of the PIMCO bond fund company and the person from whom he drew much of his investing prowess and information, Edward Thorp.

In addition to running a hedge fund which went nearly three decades without a down year, Thorp also penned a book called "Beat the Dealer," about counting cards and winning at blackjack.

Both Thorp and Gross employ lessons learned from blackjack in their daily investing.

One of the lessons imparted from Thorp in the article: "You have to make sure you don't over-bet ... The optimal thing to do, if you want to get rich, is to bet 5 percent of your wealth on each toss — but never more."

Gross said Pimco allocates no more than 2 percent to any position, no matter how favorable the position may seem. "Professional blackjack is being played on this trading room from the standpoint of risk management, and that's a big part of our success," Gross said.

Stock guru Jim Cramer also makes mention of a horse-racing book in one of his investment books that serves as inspiration for some of his principles.

Comparing stock investing to gambling makes me uncomfortable. I've never been a gambler. In fact, I pretty much detest gambling.

That doesn't come from any moral point of view. God knows I've spent enough money on drink. But at least that's usually a sure bet.

It comes from seeing people spending wads of cash on lottery tickets at the convenience store and then driving off in a car that seems lucky to make it out of the driveway.

The video poker dens I covered as a reporter in South Carolina, which eventually outlawed them, were soul-sucking dungeons that compelled zombified players to remain chained to the screens all day. How could they continue to feed mountains of coins into a device that delivered results that were totally random, I thought.

However, when I stop to consider the unknowns of investing, I guess I have to admit to myself that I, too, am a gambler.

I'd like to think there's a difference between researching and picking a stock I think is going to perform well and someone checking out the track record of a racehorse he or she is about to bet on. But I guess maybe there isn't.

Even people who recently bought those auction-rate securities that were supposedly as safe as cash but were more liquid than CDs, found themselves stuck and unable to sell them (I am one of them).

So I guess that means that even a "sure thing" in investing is not a sure thing.

Anyone out there have a good system for picking lottery numbers?

Mock portfolio performance

We're still in the black, albeit barely, in our mock portfolio of six stocks.

The total funny-money value of our portfolio is $33,950, which is $251 above what we bought it for — a .74 percent gain. Don't break out the champagne just yet.

After the Dow's climb back above 13,000 a week ago, we erased most of the traction we had gained by Friday to more bad financial news and soaring oil prices.

Still, I'll take two step forwards and one step back as long as the net result is upward. Here's hoping.

Wachovia (WB) is definitely keeping us down. By week's end we were down 35 percent in it. You're probably tired of hearing it and I'm tired of writing it, but oil explorer Devon Energy Corp. (DVN) is unstoppable. We're up 40 percent since fake-buying it in December.

The mock portfolio is published each Monday in the print edition of the Bradenton Herald.

Brian

Market showing renewed signs of strength

2008-05-05T05:16:00.000-07:00

What a week.

The Nasdaq added about 2 percent and the Dow closed above 13,000 for the first time since January.

A better-than-expected jobs report on Friday suggested that the economic downturn the nation is experiencing may not be as deep and protracted as earlier thought.

In other words, the bulls may be back in charge.

Still, pundits caution that there are still many lingering unknowns, not the least of which is the possibility that what many banks have gone through with writing down bad mortgages may soon take place with credit cards as more individuals rely on them for day-to-day necessities in the face of the challenging economy.

Some also question how long the explosive growth of oil and agriculture stocks has to last. Fertilizer giant Mosaic (MOS) was the top performing stock for 2007 according to the current edition of Fortune.

During the year, it tacked on a whopping 341 percent. It added another 32 percent since the first of the year.

Time to jump in? Maybe. Maybe not.

Retailer woes

National Public Radio had a guest on last week that discussed what he believes will be an overall painful year for retailers.

Howard Davidowitz, of the New York retail consulting firm Davidowitz & Associates Inc., said he expects as many as 7,000 stores to close this year as consumers continue to struggle in the sluggish economy and lending institutions become more guarded of their cash.

Bombay furniture announced in October it was closing all of its remaining 388 stores. Clothier Ann Taylor announced it was closing 117 of its underperforming stores. Linens n’ Things announced Friday it was filing for Chapter 11 bankruptcy and planned to close 120 underperforming stores.

And the list goes on.

"There’s a tremendous number of stores closing all over America," Davidowitz told NPR.

Davidowitz maintains that America is "overstored," and needs about half the 19.5 square feet per person of retail space it currently has.

Many retailers won’t be able to get the financing they need because of the ongoing credit crunch and mortgage crisis, Davidowitz said.

"If you need an extra line of credit to get through a bad month, you’re finished," Davidowitz said. "It’s a terrible time to be dependent on bank debt."

Brutal currency

In the Stranger than Fiction Department, the Wall Street Journal ran a story last week about a new currency bubble forming in the Solomon Islands in the South Pacific.

You might expect it would be gold doubloons salvaged off wrecks or something along those lines. If only that were the case.

No, the currency growing in favor after the years of ethnic strife there is dolphin teeth. We humans place a value on some pretty strange things, but this one seems to take the cake. At least it ranks up there as the most inhumane.

According to the article, dolphin hunters harvest the teeth by driving the mammals into shallow water until they become stuck in the mud. Hunters suffocate the dolphins by covering their blow holes and then behead them with machetes.

Mock portfolio performance

We're up about 2.4 percent this week on our mock portfolio of six stocks. Oil explorer Devon Energy Corp. (DVN) still leads the pack in our portfolio that we fake-bought in December, posting a 35 percent gain for us.

Wachovia Bank (WB), which is currently being targeted in a money-laundering probe pertaining to Mexican and Colombian drug-trafficking proceeds, is still in last place, losing us 30 percent since we fake-bought it.

Brian

You might take a closer look at that proxy

2008-04-28T05:06:00.000-07:00

If you’re anything like me, you probably open up those proxy statements you get in the mail for various stocks, yawn, and throw them in the trash.

But the other day, I opened up a proxy for my 11-year-old son’s few and declining shares in Home Depot (HD) that my father bought him a while back. Just for kicks, I looked at some of the shareholder resolutions the board of directors recommended that I vote "against."

Among them, one that would require Home Depot to disclose its employment diversity, another that would provide a pay-for-superior performance incentive, and another regarding executive officer compensation (I’m guessing that one isn’t on a pay-for-superior performance schedule).

Hmm, I thought. Maybe I should pay more attention to these things after all.

A day or two afterward, the Wall Street Journal ran a piece chronicling how companies shifting from mailed proxy cards to Web ballots had led to a decline in the "already lethargic" voter participation by shareholders. About 80 companies have shifted to the "e-proxies" and the Securities and Exchange Commission is keeping a close eye on voter participation as more companies follow suit, according to the article.

Even if you don’t vote (an I’m certainly not promising I will), it may be worth taking a peek at the next proxy you receive just to see what that board of directors is up to.

Resistance met and defeated

A lot of pundits were talking last week about the need to clear a level of resistance in the Dow of 12,800. Well, we did it, despite some bad data about consumer sentiment and a report that new home sales had hit a 16-year low.

Also interesting was a piece I read on MarketWatch about legendary fund manager Bill Miller of Legg Mason saying that he believes the worst in terms of the credit meltdown is behind us.

In a letter to Legg Mason Value Trust shareholders, Miller said he thought the bottom of the financial havoc was reached with the collapse of Bear Stearns (BSC) and stocks are poised for strong gains in coming months, according to the article.

Miller's been wrong before, of course, but his 15-year streak of beating the S&P 500, which came to an end in 2006, is nothing to sneeze at.

I've had some luck recently. I picked up about 20 percent on Hess (HES), before cutting it loose. I've also gained about 15 percent on Apple (AAPL). But in the minus column, I lost about 8 percent on Companhia de Bebidas Das Americanas (ABV), a Brazilian producer and bottler of beer and soft drinks, before selling it. It may come back, but I didn't want to chance riding it down any further.

Mock portfolio performance

One of the laggards in our mock portfolio, Boeing (BA), got a much-needed lift this week when it posted earnings growth of 38 percent and reported a record backlog of plane orders, signifying high demand.

We're still down about 8 percent on the stock, but this week's news shaved our losses in half. Devon Energy Corp. (DVN) just continues to astound and amaze. We've made 43 percent on it since fake-buying it in December — turning $8,281 in funny money into $11,860.

At the tail end of a phone conversation the other day, Manatee County Commissioner Ron Getman joked that he didn't particularly care for some of my selections for the mock portfolio.

I asked which ones, and he said, "Well, the ones that are losing all the money."

Makes sense to me. I explained, and it bears noting again, that this is a static portfolio that we've committed to holding for one year. But as you've no doubt gathered, I'm not a buy-and-hold guy in real life. I wouldn't still be sitting in Wachovia (WB) at a 34 percent loss and I definitely would have sold some or all of Devon by now to pocket some gains.

It will be interesting to see where our hands-off portfolio ends up for the year. As of Friday, our portfolio of six stocks was up 2.47 percent, our second week of breaking into the black for quite some time.

Brian

Don't be a financial dummy; read up

2008-04-21T04:48:00.000-07:00

I was eavesdropping on a conversation between an elderly gentleman and his financial adviser in a local restaurant the other day.

Don’t get the wrong. I don’t usually go out of my way to listen to other people’s conversations. But they were, after all, talking about stocks.

The thing that got me about the exchange was how sterile and dry it was.

"What about XYZ stock?" the gentleman would ask

"Well, according to our ratings, blah, blah blah," the adviser said. Or, "I’ll have to do some more research on that."

Research is what the elderly gentleman asking the questions should be doing.

Congress dubbed April "Investor Literacy Month," but as far as I’m concerned, every month should be an occasion to educate oneself about the stock market and investing. I do have a financial adviser, and I do occasionally seek advice from her.

But the stocks that I buy are stocks that I’ve spent time researching and are usually ones that have been on a watch list of mine for a while.

They don’t all pan out, of course. Otherwise, why would I be sitting here plucking away on a computer keyboard waiting on payday to come around again?

But those that don’t work out, I get rid of.

Not to sound preachy. It’s just that I guess I want to blame myself, rather than some guy who’s going to "do some research" and get back to me on my trading ideas.

So without further delay, here are some places I go to get trading ideas:

Investor's Business Daily

This is a newspaper devoted solely to trading. It definitely has a technical bent, meaning it relies heavily on charts, price patterns and other indicators. But it also has in-depth articles on emerging companies that show promise for the future.

The paper compiles the IBD 100 index along with Smartselect Composite Ratings that based on companies' earnings, margins and other factors. The IBD 100 has produced a return of 215 percent during the past five years, compared to the S&P 500's 46.3 percent during that time, according to the newspaper.

I like the paper for its teaching approach and advice on when to buy and when to cut your losses. www.Investors.com

Morningstar.com

Great Web site for stock analysis and articles on investing. Some access, like analyst stock reports, are through paid subscription only. But there is a variety of stuff on the site that's free, covering everything from individual stocks to bonds to mutual funds.

The site also has Morningstar's widely used five-star rating system for stocks.

My only criticism is that some of the ratings and analyst opinion have been absent during the ascension of rocket stocks like First Solar (FSLR). The site now carries a rating and analysis of the stock, but didn't back when I was thinking about buying some.

MarketWatch.com

Likely, most people already know about this one, but it's a great place to get breaking news on the day-to-day gyrations of the market and there is also some pretty interesting commentary on there as well.

I especially like the columns of Paul B. Farrell who gives a no-holds-barred take on the inanity and shenanigans of today's investing world. His take on the "hoax" of "Investor Literacy Month": "In spite of all the public hype about programs designed to make investors smarter, the truth is Wall Street makes more money off investors who are illiterate, dumb, ignorant, stupid and irrational ... The last thing Wall Street wants is 95 million investors who wise up to its greedy games."

Stockpickr.com:

Yes, you leave the "e" out. Someone must have already owned the Stockpicker domain name. Regardless, the site bills itself as the "Stock Idea Network" and has lots of forums and user-submitted portfolios.

One of the coolest features of the site is its tracking of professional investors' portfolios, so you can literally trade like Warren Buffet (as long as you’ve got $40 billion). The site, which was the brainchild of James Altucher, boasts more than a dozen different methods for getting quality stock ideas.

So get to learning.

Brian.

Call me an April fool, I'm staying in the market

2008-04-14T04:46:00.000-07:00

My editor wants me to eat crow.

And maybe I do have a black feather or two stuck between my teeth.

But I'm not deserving of having to swallow the whole bird — not yet, at least.

All week long I'd been remarking — OK, bragging — to my editor that things had been going really well in the market since the April Fool's Day rally (that should have been the clue right there) that brought us out of the doldrums. I was even starting to see some gains, something that had been scarce lately.

Then came General Electric's (GE) news on Friday that its profit fell 6 percent, or $4.8 billion.

And as we all know, GE is the only company in the world, and therefore if its profits fall, no other companies will be able to turn a profit ever, ever again. And with that knowledge, the market did the only thing it could responsibly and reasonably do and sold off huge for the day.

OK, that's bitter jest. GE's earnings were telling for many analysts who see it as a gauge of the world economy because of its multinational status. For such a behemoth to get hit so hard might be foretelling of future earnings reports to be released in coming weeks, they maintain.

But other analysts were quick to point out that much of the $300 billion company's losses were due to its financial services and consumer discretionary sectors, and is not necessarily indicative of a huge downturn in its industrial business.

In fact, when I took a gander at GE's 8-K filing on the Securities and Exchange Commission Web site, I discovered its global infrastructure business (comprised of its energy, transportation and aviation products) grew revenues by 23 percent and net income by 17 percent. That was an aspect of the report I didn't see getting much attention.

So as I watched my proud gains fizzle throughout the day like the filaments in so many GE 40-watt bulbs, I had begun to ponder whether I'd cook my crow in a fricassee, or just throw it in a pot with some cheap wine and some root vegetables.

Then I thought, no way. I'm sticking to my plan and staying in the market. But keep that crow on ice, just in case.

Point A to point B plays

A shipping expert was at Port Manatee last week talking about the new wave of containerized cargo that will be headed to U.S. ports once a widened lane is opened at the Panama Canal in the next six years or so.

Already, a flood of goods comes to us in those metal boxes that fit on a semi truck chassis or railroad car. The same day, The Wall Street Journal reported that container manufacturers could not build the metal boxes fast enough to keep up with demand. We humans, after all, are a consuming bunch.

But the expert, John Vickerman, founding principal of transportation consulting firm TranSystems Corp., got me thinking with his talk of a huge push for all things ship and rail.

The Journal reported awhile back about the big overhaul of U.S. rail lines by companies like CSX Corp. (CSX, I own), Norfolk Southern (NSC) and Burlington Northern Sante Fe (BNI). Vickerman said more and more products are arriving in containers.

Ships that currently pass through the canal carry an average of 5,000 containers. Those passing through the expanded canal will be carrying nearly double than that. Shipping lines and railroads might be good plays, but some analysts say this year will likely be a challenging one for the global shipping industry.

Those with a timeline greater than December might want to do a little digging in this area.

Mock portfolio performance

Not much to report, particularly after Friday's action. Devon Energy Corp. (DVN) crept up a little more on the plus side for us, with a 32 percent gain since we fake bought it in December. Other than that, we're still sitting it just over a 3 percent loss, down $1,148 on our phony investment of $33,699 for six stocks.

Brian

Light reaction to jobs report good news for market

2008-04-07T05:26:00.000-07:00

What does it tell you when a horrific jobs report comes out showing payroll declines of 80,000 for the month of March — the steepest drop in five years — and the market doesn't sell-off, but actually posts gains in the Nasdaq and S&P 500 for the day and a mere16-point loss in the Dow?

It could tell you that everyone has blinders on and are continuing to invest heavily in the unknown with crossed fingers.

Or it could tell you that the bottom has been reached — that everything but the sky falling has been baked into the market and we're actually going to start seeing some upside.

That's the camp I'm in, and I hope I'm right.

While I was sleepwalking through all the gloom and doom, some things have happened behind my back.

Since falling to a recent low of $119.15 a share on Feb. 26, Apple (AAPL, I own) has jumped roughly 26 percent to above $150. I caught on kind of late in the $140s, but got myself there nonetheless.

The Dow has gained over 800 points since mid-March and is currently heading toward 12,700.

Sure, it's not the 14,000-plus we had in October, but it's progress nonetheless.

Banks, if you dare to go there, have also shown improvement after a number of steps by the Federal Reserve to pump liquidity into the financial system — steps, that unless you've been living under a rock, have heard too much about already.

Bank of America (BAC) has risen by about 12 percent since mid-March, and Citigroup (C) has gained about 21 percent since that time, too. Some pundits, however, question whether financials are yet a good place to be. A JPMorgan analyst cut earnings estimates Friday on Bank of America, Citigroup and Wachovia (WB), saying all three likely face more write-downs due to credit deterioration.

But the point is, it might very well be a good time to get somewhere. Do a little buying. I may eat my words this week, but I don't think so.

Don't take it from me, though, as I am not a financial adviser or investment professional and listening to me could cause you to lose all or part of that nest egg you've been saving. And then your wife, who's already been on your case for the drinking and Wednesday poker nights, will leave you. And since you were a two-income couple, and she was the highest earner, it will take you two or three times as long to save up for anything in the way of investable assets. And the rally, if and when it does come, will pass you by as you're eating Ramen noodles and drinking cheap, canned beer in front of the dismal TV, sad and alone. And broke.

Now that the disclaimer is out of the way, I recently bought oil company Hess (HES), ag machinery dealer Titan Machinery (TITN), biopharm company Celgene (CELG), China Mobile (CHL), Visa (V), software company Oracle Corp. (ORCL) and the aforementioned Apple.

More ideas

Every so often, Investor's Business Daily runs a list of new buys of top-performing stock funds during the past three months. Though too numerous to list all of the stocks here, I'm giving the top five in terms of numbers of funds buying shares. They include: oil and gas driller Transocean (RIG, 26 funds), Hess (16 funds), oil and gas exploration firm Southwestern Energy (SWN, eight funds), oil and gas equipment manufacturer FMC Technologies (FTI, six funds) and Apple (six funds).

You can also find out which stocks are being bought by funds at www.Stockpickr.com (the "e" is intentionally left off). It's not always sure-fire, but it's a good gauge of your picks if the pros are buying up shares as well.

Mock portfolio performance

We're still down 3 percent, but can start to see the light of profitability on our portfolio of six stocks we fake-bought in December. It's not all that bad for the knocking around the market has taken.

Oil explorer Devon Energy Corp. (DVN) has made us 29 percent or $2,453 on an investment of $8,281. If this wasn't a static portfolio that we intend to keep in play for the year, I'd take some or all my profits on Devon.

I also would have long ago pared Wachovia and Boeing (BA), which have lost us 37 percent and 18 percent, respectively.

Brian.

Time to buy banks?

2008-03-24T05:57:00.000-07:00

I got a little misty eyed on Thursday, the last day the market was open before the three-day Easter weekend.

It looked a lot like a lot like the good old days and the troops that rallied six months to a year ago were back in fine form.

I’m talking about the Apples, the Bank of Americas, the Targets and the nice 200-plus-point showing from the Dow.

I'll confess, I had been ready to be the skeptic again. I knew for sure the explosive 400-point rise in the Dow on Tuesday following the Federal Reserve’s three-quarter-point rate cut was nothing more than a sucker’s rally and we’d be right back to where we were before the next day.

After all, hasn't that been the pattern lately?

"Yep," I thought to myself the next day, when the Dow gave back about 300 points — right on my pessimistic cue.

But Thursday’s action seemed to have some belief behind it. And it started to make a believer out of me.

And it's worth noting that at the same time the beaten-down sectors were rallying, those safety darlings of late — gold and commodities — were getting slammed hard. Gold, which hit an all-time high of $1,017 an ounce last Monday, plunged $80 an ounce by the end of the week.

Indeed, Wall Street types have suggested that the implosion of Bear Stearns (BSC) is exactly what we needed to signal the bottom. Such a major event, they argue, had to happen before investor confidence could be restored and the belief that the worst is behind us could prevail.

Punk Ziegel & Co. analyst Dick Bove declared Thursday to MarketWatch that the financial crisis is over and it’s time to buy bank stocks.

Others, however, are more cautious and think we’re not quite clear of the nightmarish headlines that may lie ahead.

Friday’s Wall Street Journal highlighted one of those who has heralded buying stocks of homebuilders and banks now that they’ve fallen.

But he may have some back-pedaling to do.

It was Bill Miller, the famed stock-picker of Legg Mason who was known for his 15-year track record of consistently beating the S&P 500 Index (the streak ended in 2005).

Miller was speaking at a conference, where he was espousing the same theory of picking up beaten down homebuilders and financials — including Bear Stearns, a holding of his fund.

The investing guru, the Journal reported, was shocked at the end of the presentation when a member of the audience raised his hand and asked if Miller was aware Bear was down 15 percent that morning (we know what happened after that). Miller apparently didn't know.

That said, Bank of America (BAC) and Citigroup (C) were up 9 percent and 10 percent on Thursday. Centex (CTX), a homebuilder that’s one of the stocks in our mock portfolio, was also up nearly 10 percent on Thursday.

Would I be surprised to wake up this morning and see the indexes pointing lower again or another financial institution blowing up? Nope.

But I do sense the tide may be starting to shift. Let's hope so anyway.

Mock portfolio performance

As noted above, Centex had a good run-up this week, making it the head of the heap in our mock portfolio of six stocks.

Financials and homebuilders got a boost from all of the Fed action of late, which included cutting the Fed funds rate and also lowering the rate at which commercial banks can borrow from the Federal Reserve Bank.

Another of our holdings, Wachovia Bank (WB), got a nice 8 percent bump on Thursday to close up $2.42 to $30.72.

A nice gain, but Wachovia still has far to go to get back in our good graces. It has still lost us just over 28 percent since we fake bought it in December.

Overall, we've lost $2,490 on our initial phony investment of $33,699 — a loss of 7.38 percent. Let's hope today is a follow-through of Thursday's action.

Happy trading,

Brian

Maybe the Fed can print more money

2008-03-17T05:37:00.000-07:00

As many might have guessed, the Federal Reserve's injection of $200 billion in liquidity into the credit markets last week had about as long-lasting an effect as a raindrop on a wildfire.

Investors cheered the resulting 400-plus point jump in the Dow that followed the news, but by Friday's close, most of those gains had disappeared, helped along by more financial firms (Bear Stearns, BSC and Carlyle Capital, CARYF) teetering on the brink of disaster and soaring oil and gold prices.

I keep thinking the end of all this is coming. That things will turn to the upside any moment.

In fact, Standard & Poor's boosted Thursday's market — however anemically — with its projection that financial institutions have already disclosed the worst of the worst and may even revise upward their bad debt disclosures.

But others are skeptical and there aren't many camps left that don't believe we're in recession.

"The tip of the iceberg" is a term that keeps getting tossed around regarding the housing and credit debacles.

The Fed meets again Tuesday and investor hopes are pinned on at least a 75-basis point cut.

Will it even matter? If I were a betting man, I'd say not much more than a day.

I'm finding a pattern emerging in all of this. On alternate days it seems the short-selling investments that bet on the market's fall are up crazy. Then the next day or so it's the ag and fertilizer group (Potash Sakatchewan (POT), Mosaic (MOS) and Terra Nitrogen (TNH)) that have their big run.

And on it goes. I keep thinking I can catch this pattern and profit from it, but I have better sense to than to try (at this moment anyway).

Shorting a short ETF?

Poking around the other night on a message board related to ProShares Ultra Short Real Estate (SRS), which I've been having some luck with, and then I haven't, and then I have, and then ... anyway, I noticed a number of comments from traders who were actually shorting the short ETF.

Huh?

I wondered why they wouldn't just buy the other ProShares offering (or even one from another firm) that is bullish on real estate. Seems like shorting the shorting one is going to extra trouble to be long on real estate. Maybe someone out there can explain why this would be?

But it got me thinking about the potential complexities that could be added to our already complex market.

I know any day now, if it hasn't happened already, they'll come out with an ETF that shorts short ETFs. Then it would be entirely possible for one to short an ETF that shorts short ETFs.

But wait. Next, they'd come out with an ETF that shorts ETFs that short short ETFs.

So if my logic follows, one could feasibly short an ETF that shorts ETFs that short short ETFs.

Now that's one for the message boards.

Say what?

People on Google Finance this Thursday were trying to figure out what shot up the stock price of Vornado Realty Trust preferred shares from $21 to 1,000 — a whopping 4,599 percent increase.

Apparently, nothing. It seems it never happened, though it did bring some inquisitive comments on message boards.

Friday, the stock was listed as trading around 21 bucks a share.

Mock portfolio performance

Only one stock is in positive territory for us this week. It's Devon Energy Corp. (DVN), which is up 24 percent since we first fake-bought it in December. I would have already sold four of our six stocks if I really owned them, especially Wachovia, which has lost us about 40 percent.

The mock portfolio is published each Monday in the Bradenton Herald.

Be careful out there.

Brian

This rally has some more convincing to do

2008-03-12T11:00:00.000-07:00

The headlines screamed: The best day's performance in five years!

But a day does not a market make and a chart on the front of Investor's Business Daily this morning told a different story.

The chart showed the continued downward progression of the S&P 500, despite six Fed rate cuts and two liquidity infusions since August.

Granted, it was nice to see the positive movement. Like I told my editor, some smart people made a heck of a lot of money on Tuesday. Unfortunately, I was in the other camp, still holding some ProShares Ultra Short Real Estate, which I exited quickly, but not without a substantial hair cut.

Now I'm pretty much back to square one, sitting on the sidelines and waiting for a good follow-through week before thinking about anything else.

Like the average mutual fund prospectus states: past history does not indicate future performance. But it does give a good indication of where we've been, and where we may yet have to go.

The choice is up to them

Borders thinks that tailoring to Americans' short attention spans will help its business and its stock.

This morning's Wall Street Journal carried a story about the book and music chain placing more of its books so the their covers, rather than the spines, are viewable.

The idea came about from Borders Chief Executive Officer George Jones, who discovered while a buyer at Dillard's that dresses sold better when they were fully viewable rather than hung sleeve out, according to the article.

But the move also seems tailored to a society that increasingly reads less and watches more screens.

This new strategy comes at a cost: Borders will have to shrink its number of titles by 5 percent to 15 percent to make extra shelf space.

Being a book lover, and a big fan of Borders in particular, that comes as sad news, even if it does boost the company's stock, which has fallen from $24 to near $8 a share in the past year.

A quote in the article from John Deighton, editor of the Journal of Consumer Research, also rubs me the wrong way.

"People don't want choice, they want what they want," he said. "And what they want is sometimes constructed for them in the store by the attractiveness of what's on offer."

Bet you're hating your financial adviser

2008-03-10T05:15:00.000-07:00

When the market's rosy, you might love your financial adviser. But if you're like the majority of people receiving their statements during the last six months or so, you might say to yourself, "What's up with this guy?"

Apparently, sentiment about financial advisers typically follows the market's performance, according to an article in the recent edition of BusinessWeek that looked at complaints to the National Association of Securities Dealers at the time the Internet bubble burst in 2000.

During the period, annual complaints rose to 6,584 during the peak of the market's collapse, according to the article. The most recent data showed complaints began to increase again in 2006, the article states.

"Now the turmoil in the market has more jittery clients checking in with these advisers and asking tough questions," the article states. "Many wind up reassured, but sometimes a response — or lack thereof — shows it's time to move on.

The article suggests some warning signs that it might be time to change up your adviser.

Among them are:
• An overwhelming number of order confirmations, which might suggest the adviser is churning the account for fees.
• Inability on the part of the adviser to clearly explain his or her fees.
• Difficulty reaching or getting phone calls returned by the financial adviser.

Choppy waters

Making money in the current market is pretty darned hard to do. This past week, Wall Street was walloped with all kinds of negative data that pushed stocks down, down, down.

Among the bear fodder was news that national foreclosures had hit a new record and equity as a percentage of home values had reached a low not seen since 1945.

For many, Friday’s report that non-farm payrolls in February dropped by 63,000 was the final piece of data that proved beyond a reasonable doubt that we are in a recession.

The Dow dropped below its Jan. 22 low of 11,971 and kept on falling to close at 11,894 on Friday. I’ve had some luck trading in and out of ETFs that short housing, real estate, the Dow, and S&P 500. Kind of a bear shotgun approach you might say.

But more than anything, I feel like I'm just flailing about. Spinning my wheels, if you will. As of this writing, my universe consists of one holding: ProShares Ultra Short Real Estate (SRS). And I’m watching it like a hawk.

Volatility is huge at the moment, though that's stating the obvious. Todd Harrison offered some interesting, Zen-like pointers on MarketWatch.com for trading in this market, under the heading "Ten tips for a tough tape." In it, Harrison suggests getting a little contrarian in your thinking by not jumping on every bandwagon financial pundits are lauding.

He uses the example of the current "love affair with commodities."

"If you’re late to this trade, consider staying on the sidelines and awaiting a more advantageous entry point," he writes. "Opportunities are made up easier than losses, and it’s never a good idea to run with the herd if you don’t know where the cliff is."

Don't let emotions guide your trades, Harrison advises. "And never rationalize your positions," he writes. "The definition of an investment should never be a trade gone awry."

Mock portfolio performance

Could we lose any more money in Wachovia (WB)? We're down almost 37 percent in it since fake-buying it in December. Is that why people are saying to still stay away from the financials?

Boeing (BA) had another setback last week, losing a long-standing contract to build refueling tanker aircraft for the U.S. Air Force to Northrop Grumman (NOC). So far we've lost 8.25 percent on our portfolio of six stocks since December.

Brian.

There's gold in them there hills

2008-03-03T04:54:00.000-08:00

If you haven’t had some exposure to gold recently, whether through stock in miners, bullion ownership or a gold fund, you’re probably kicking yourself right now.

The malleable metal and essence of bling hit a record high of $975 this week on the back of a weakened dollar. Is it too late to jump in? That’s anybody’s guess.

Some are lumping the metal substance’s rise in with commodities like wheat and oil, which have also been on a tear. They think that it’s only a matter of time before the bubble bursts and gold prices start to fall.

Others, however, think that gold prices may reach as high as $2,000 an ounce in the not-too-distant future. It’s your call which camp you want to place your bets on.

I know I parted with a gold fund (USAA Precious Minerals and Metals Fund; USAGX) with a tidy profit late last year when gold prices were in the $800s. The gold rush was going to fizzle out at any moment, I thought.

Needless to say, the fund has continued to march upward.

A victor in the movie wars?

Blockbuster (BBI) and Netflix (NFLX) have been going at it in the DVDs-by-mail war. Netflix was the sole player in this biz for awhile, with its promise of no late fees and a wide selection of movies, including some more obscure titles and TV series (remember “The Prisoner” with Patrick McGoohan getting chased around the island by that big floating bubble?).

But Blockbuster began to take notice, and started a competing “Total Access” service that offered DVDs by mail that subscribers could also exchange at Blockbuster stores for a new movie.

Well it’s looking as if Netflix is emerging triumphant. Last week its shares jumped 12 percent after upping its guidance for the first quarter from 8.16 million subscribers to 8.26 million.

The Los Gatos, Calif. company expects to have 9.5 million subscribers by the end of the year.

A story in Investor’s Business Daily that ran after the forecast revision noted that Blockbuster has ceased advertising its “Total Access” product and pared down its online rental DVD library.

Market cleansing?

Rick Santelli, CNBC’s senior editor who daily reports from the Chicago Board of Trade, seems to be getting more animated and spunky since he boldly took on “Mad Money” host Jim Cramer a few weeks ago for continuing to be bullish in the face of the market’s downturn.

Last week, Santelli continued his confrontational course with a pundit who was debating whether or not we were entering a recession.

After a lot of finger-wagging and shouting between the two, Santelli quipped: “Then have a recession! It’s a financial enema for a sick animal.”

Watching the action – or more aptly, slaughter -- Friday, that animal seemed a whole lot sicker.

In my humble, non-economist point of view, I agree with Santelli, who basically feels that the market and overall economy need to feel the pain that’s been coming for sometime now, rather than continuing to put it off with continued spoonfulls of laxative in the form of Fed rate cuts every time there’s a hiccup in equities.

Already though, bets are being taken on whether Ben Berananke and Company will cut rates 50 or 75 basis points in March when the Federal Open Market Committee meets again. With the massive sell-off Friday leaving the Dow down 315 points, or 2.5 percent, I'd bet on 75.

Stanley Bing, the hilarious Fortune magazine columnist, posited this funny take Friday on his blog about the dismal headlines that continue to permeate the financial media:

“I’m expecting to wake up sometime soon and see a headline in the stack that says, ‘World ends with both bang and whimper. Bernanke soothes investors with indications of additional rate cuts.’”

Mock portfolio performance

We're down $1,400 or 4.15 percent on our mock portfolio of six stocks since we fake bought them in December at a cost of $33,699. That's probably not too bad for a buy-and-hold portfolio, given the fact we've shaved more than 1,000 points off the Dow since that time.

Maybe it's time for a long-term view

2008-02-25T06:41:00.000-08:00

Geoff Colvin of Fortune penned an interesting piece titled “America For Sale” in the latest edition of the magazine that casts an eerie pall on all of these sovereign-wealth funds that have been making headlines for infusing billions in flailing banks.

In it, he explores further the issue of foreign governments racing to buy up beaten-down assets and investments in the good ‘ole U.S.A.

Partly because of the cheap dollar, foreign buyers set a record last year by purchasing $414 billion of U.S. assets, Colvin writes.

Though stating that there’s nothing wrong with foreigners buying stakes in U.S. business, Colvin argues that a troubling trend is emerging – essentially, the rest of the world owns far more of America than it owns of the rest of the world.

And that disparity seems to be increasing, Colvin suggests.

“As it grows, we must send more dividends and interest to foreign owners,” Colvin writes, “giving them more money with which to buy more U.S. assets, earning more dividends, and so on.”

Colvin offers us a grim vision of a nation whose citizens “cease to be capitalists and become simply wage earners. As Warren Buffet put it in a prophetic Fortune article more than four years ago, a country that goes too far down this road can be ‘colonized by purchase rather than conquest.’”

Flip a coin

That’s right. A good heads or tails call will likely give you about as good an indication as any about what direction this stock market is going.

Lately I’ve been going with Proshares exchange-traded funds that short the Nasdaq (QID), the Dow 30 (DXD) and the S&P 500 (SDS).

These ETFs go up when the market goes down.

Friday, things were going great, with all three up over a buck. That was, until about 3:30 that afternoon, when the Dow shot up nearly 100 points out of nowhere.

Thus illustrates this crazy market we’re in.

I have this nagging feeling that I might have entered the shorting game too late. That much of the bad news is already “baked in” to the market, as they say, and a turnaround is imminent.

Then again, financial firm write-downs keep coming and the credit crunch continues to spread. The lead to a Wall Street Journal story last week about $2.85 billion write-down by Credit Suisse read: “The smart money keeps looking dumb.”

The forest for the trees

I’m loathe to even try to recommend a strategy or tell you about the numerous articles touting this fund or that sector. The current market all stinks and it’s making me sick.

But like a lot of others, I probably focus too much on price action. I know that neglects a lot of people out there who are probably more long-term in their investment views.

There are some interesting things happening in the world that do merit acknowledgment.

For instance, there’s the whole alternative energy push, led primarily by solar at the moment. Even though sector leader First Solar (FSLR) has shown crazy price volatility of late, it is still one that stands a good chance of being around tomorrow.

Though Apple’s (AAPL) smart phone titillated techies with its cool features and Web connectivity, I’ve read several places where the potential and demand for smart phones is just beginning. Companies like Broadcom (BRCM), Qualcomm (QCOM) and Intel (INTC) that provide components for such phones have been touted as decent bets for the future.

All is not lost and things will turn around. I’m convinced of that. It’s just hard for me to see around that wall of worry that’s been plaguing the market lately.

Mock portfolio performance

Once again, nothing much has changed in our portfolio of six stocks we make-believe bought in December.

Wachovia (WB), being in one of the most beaten-down sectors, the financials, is down about 20 percent from where we bought it.

Devon Energy Corp. has become our new shining star, posting gains of nearly 18 percent.

Brian.

Bioplastics firm intriguing, but be careful

2008-02-18T04:39:00.000-08:00

I’m keeping my eye on Metabolix.

It sounds like one of those energy drinks weightlifters guzzle, but Metabolix (MBLX) is actually engaged in the making of plastics.

Rather than the kinds of plastics that clog up our landfills and take hundreds or thousands of years to break down, Metabolix’s plastics are made from sugars in plants.

The Cambridge, Mass. company founded in 1992 has partnered with ag giant Archer Daniels Midland to construct facilities and fermentation equipment that will produce "bioplastics" for the trademarked Mirel plastics line.

Metabolix and ADM are working to complete a Mirel biorefinery in Clinton, Iowa that is scheduled for start-up in late 2008 and will produce 110 million pounds of bioplastic resin per year.

Rising costs of petroleum — used in making traditional plastics — and the environmental damage caused by six-pack rings, and plastic cups clogging up waterways and dumps are things Metabolix believes will give it a leg up in producing a biodegradable alternative.

And Metabolix must be on to something since Procter & Gamble (PG) tried to nullify the German equivalent of one of the company's patents. Last year, a German Federal Patents Court threw out the case.

Metabolix, which trades on the Nasdaq at around 18 bucks a share, has shown some upside in recent days on decent volume, despite how lousy the market's been. Some of that upside came from news that Metabolix was starting to develop "oilseeds" for use in making bioplastics.

The company also has a fairly high degree of institutional ownership by funds and investment firms.

Time to buy, right?

Not necessarily.

Keep in mind, Metabolix has negative earnings at this point, with most of its capital being deployed to research and development of its future products. And as it states in its own regulatory documents, there's a chance that virtually anything can go wrong that would keep Mirel from being successful in the marketplace. Such statements are standard in SEC filings of companies R&Ding new products.

But Metabolix seems definitely worth watching.

Working on the railroad

Wednesday's Wall Street Journal carried a front-page story with the headline: "New Rail-Building Era Dawns."

The story said the U.S. is currently undergoing a "railroad renaissance," with railroad companies like CSX (CSX), Norfolk Southern (NSC) and Burlington Northern Santa Fe Corp. (BNI) spending billions of dollars to add new tracks, straighten existing curves and build new tunnels.

The overhauled infrastructure is needed to accommodate increased cargo, mostly from Asia, coming from the nation's seaports to distribution centers.

Since 2000, the railroads have spent $10 billion to expand tracks and have another $12 billion in upgrades planned, according to the Wall Street Journal article.

This is one moving train you may want to jump in front of.

More Wall Street woe envisioned

The findings of Merrill Lynch's global fund manager fund survey for February, as reported in Investor's Business Daily, suggests that the big money movers are still far from confident in a returning bull anytime soon.

Michael Penn, global emerging market equity strategist with Merrill Lynch, said pessimism is worse than during the 2001 recession.

Sixteen percent of the 190 fund managers who responded said the global economy is already in a recession. That compares to 8 percent last month and 4 percent in December, IBD reported. The fund managers oversee $587 billion in assets.

Mock portfolio performance

Devon Energy Corp. (DVN) leads in overall percentage gains this week, up about 12.54 percent since we fake bought it in December. Wachovia (WB) keeps heading to the dogs, down 21.5 percent.

Brian.

Munis may be a good place to be

2008-02-13T14:09:00.000-08:00

Looking for a safe haven in which to park your cash and still earn a respectable return while the market decides which way it's going to go?

You're probably not alone.

A couple of recent articles in the Wall Street Journal and Investor's Business Daily discuss the merits of closed-end funds and exchange-traded funds linked to municipal bonds.

The Wall Street Journal notes that high quality, 30-year municipal bonds — those issued by cities and states to pay for new roads, bridges or buildings — are currently yielding on par with 30-year U.S. Treasury bonds. That yield is in the 4.3 percent range.

But munis offer the advantage of producing income exempt from federal tax, according to the Journal article. The article suggests closed-end funds like BlackRock Municipal Income Trust (BFK) or BlackRock Investment Quality Income Trust (BKN) as a simple way to gain exposure to the asset class.

Investor's Business Daily recommends a couple of muni ETFs like Market Vectors-Lehman Bros. AMT-Free Long Municipal Index ETF (MLN) or Market Vectors-Lehman Bros. AMT-Free Long Municipal Index ETF (ITM) as decent plays for a bear market.

Trading communities offer insight, ideas

If you want to see how other investors are doing or bounce your thesis about a particular stock off someone, online trading communities are a great place to do it.

A while back, BusinessWeek ran a feature about the sites where investors can gather to chat and exchange ideas. Some even offer real-time windows into members' portfolios (anonymously, of course).

Among the sites are CakeFinancial.com, Covestor.com and ValueForum.com. CakeFinancial.com is free, but requires registration. Covestor.com is free, but a little different. It imports your recent trading data and ranks your performance as well as letting other members see how you've traded (again, anonymously). ValueForum.com is $219.99 for a year pass.

Recession schmession

There's been a lot of whining and hand-wringing about how bad the market is doing.

Heck, some of that whining and hand-wringing has been coming from me.

But the recent newsletter from Alger Market Commentary suggests the sky is not falling and that all of us cry babies should go sit in the corner.

The newsletter from Fred Alger Management, with $10 billion in assets, describes a world "still awash in cash and cheap money" and suggests that much of that global liquidity will be heading toward undervalued stocks and assets, as was the case with all the recent multi-billion-dollar infusions in U.S. banks by the sovereign-wealth funds.

Bottom line from Alger Management's perspective: "We see a system correcting, not broken; a bottom forming, not unfolding; and opportunities proliferating, not shrinking."

Brian.

New economy gauge: Gift card use

2008-02-11T05:12:00.000-08:00

You could call it Credit Crunch II.

After the subprime mess took its toll on raising the bar to qualify for mortgages, it looks like credit cards are next to get the harsh-scrutiny treatment.

The Wall Street Journal reported twice in the past week about credit card issuers girding themselves against rising delinquencies among consumers by either issuing fewer cards, reducing credit lines of existing holders, or a combination of the two.

Credit score requirements to qualify for cards are also creeping up, the newspaper reported. With many mortgage equity lines drying up, consumers are increasingly stuck with large charge card bills and little way to pay them down.

Of course, it doesn't take a genius to figure out what impact that will have on retail spending.

A different kind of card also paints a telling picture. In reporting disappointing same-store sales last week, Wal-Mart also said the majority of its shoppers who received Christmas gift cards were using the cards to purchase essentials like diapers and food items — a telling sign regarding the amount of discretionary income out there.

Not falling for it

The market is taunting me at this point. Teasing me with Apple (AAPL) shooting up over four bucks on Friday after I stopped out of it earlier in the week. Making me question whether I should maybe take a small position in China-based Internet portal Sohu.com (SOHU), which was up close to 2 percent on Friday, or wait. I'm not falling for any of it.

Nope, I'm doing lots of homework and combing for gems while taking a breather on the sidelines.

Wait a minute, you say. Isn't this the guy who just recently went wading back in the market, thinking things might be getting better?

Yep, that's me. The market's crazy. My actions have to match its moods.

Mock portfolio performance

So far, we're down about 7 percent, or $2,365, on our initial phony investment of $33,699 for 100 shares each of Boeing (BA), Centex Corp. (CTX), Cisco Systems (CSCO), Devon Energy Corp. (DVN), Florida Power & Light (FPL) and Wachovia (WB). It doesn't seem horrible, given the turbulence in the market of late.

Again, it's a static portfolio and in the real world, I wouldn't be holding on to Wachovia at a 19 percent loss or Boeing at a loss approaching 15 percent. Nearly every stock seems fair game for getting battered around these days.

Brian.

Toe dip gets quickly washed out

2008-02-06T10:59:00.000-08:00

Like an anxious child running into the shore's chilly waters, I recently decided to reenter the market.

And just as quickly, Wall Street's angry waves drove me out, cold and scared.

Mostly anyway.

After seeing that glimmer of light I last wrote about, I had taken small positions in Apple (AAPL), Green Mountain Coffee Roasters (GMCR), industrial packaging manufacturer Greif Inc. (GEF) and generic drug distributor Perrigo (PRGO). For these buys, I set strangle-tight stop losses of 4 percent.

Within the week, I've already been stopped out of all but the last. Perrigo benefitted from a stellar earnings report and significant investment from institutions recently. It was up about 4 percent on Tuesday.

A crushing report about the state of service sector employment — it revealed the sharpest decline in the 10 years the survey has been done — and more credit and housing worries served up a walloping 2.9 percent drop in the Dow on Tuesday.

The 370-point drop in the index was accompanied by a 3.1 percent sell-off in the Nasdaq.

To me, there's not much to get excited about right now other than cash.

Indicator ticking up?

Despite the doom and gloom, though, a reader recently sent me a couple of links to technical indicators that suggested the tides might soon turn in a better direction.

One of these was the Bullish Percent Index compiled by the folks at Investors Intelligence. In a nutshell, a 70 percent or higher ranking suggests the market is overbought, and a 30 percent or lower suggests oversold.

The reader pointed out that the indicator has recently crept back above 30 percent, suggesting bulls may be returning.

Only time will tell.

Firm sheds excess ETFs

I wrote a few weeks back how there was concern that the number and myriad niche focuses of exchange-traded funds was causing some to question if the market was oversaturated with them.

Well, a report in Tuesday's Investor's Business Daily said Claymore investments was killing off 11 of its 37 ETFs, which are mutual fund-like baskets of stocks that trade like a regular stock would, come Feb. 20.

The reason: lack of demand.

One of Claymore's ETFs that tracked a mid-cap stock index had drawn in only $1.1 million in assets, the publication reported. Some of the ETFs weren't even bringing in enough to cover the costs of marketing them and publishing prospectuses.

But don't fear. In announcing that it was axing the 11 ETFs, Claymore also said it planned to release another eight to 14 by the end of the year, according to the article.

Brian

Making money on sin

2008-02-04T04:38:00.000-08:00

For the past decade or so, there’s been a growing conscience factor among some investors. Green funds and investments — those that sidestep cigarette and alcohol companies, as well as firms that pollute or threaten the environment — have been growing.

Well, this isn't one of those funds. In fact, you could say it’s about as polar opposite as a daisy stuck in the tail of a long-range ballistic missile.

It’s called the Vice Fund (VICEX), and you could call it the Sopranos of the stock market world. All the dirty, sinful things are here, from tobacco and alcohol companies, to defense contractors and gambling casino operators.

And the returns are pretty decent, according to Yahoo Finance, which shows an oh-so-sinful three-year growth rate for the fund of more than 15 percent. Morningstar gives the bad boy investment five stars.

Vice Fund's top holdings include cigarette company Altria Group (MO), liquor distributor Diageo (DEO) and casino operator MGM Mirage Inc. (MGM). The rationale behind the fund is that people drink, smoke and gamble in good times or bad.

The no-load fund offered by Mutuals Advisors has a minimum investment of $4,000 and expense ratio of 1.75 percent, which translates to about $551 in total cost to the investor each three-year period on a $10,000 investment.

Guilt comes at no additional charge.

Sticking my toe in

The last couple of days in the market have looked more promising, though there's still plenty of bad news out there to go around. Daddy Fed's recent 50-point cut looked at first like it would have about as much effect on the markets as a helmet would have on the survival of a skyscraper jumper.

But there seems to be a glimmer of light. Some of the market leaders are still limping, but I decided to take my chances with a couple of nibbles.

I picked up a little Greif (GEF), and hopefully it doesn't bring me any — grief that is. There's been a buzz around the Ohio maker and seller of industrial packaging products. The stock carries an A-plus rating from Investor's Business Daily.

Also, I grabbed some Perrigo (PRGO), which supplies the lion's share of store-brand, over-the-counter drugs. IBD gives it an A-minus and Morningstar, three stars.

Mock portfolio performance

Centex Corp. (CTX) seems to be proving that theory about catching a stock that's been beaten down, as this member of the home-building sector has. Still, there's another school of thought that calls that approach "catching a falling knife," and I cut my hand trying to guess a low point in this stock awhile back.

Now I'm sorry I made that promise not to buy or own anything in our mock portfolio, published each Monday in the Bradenton Herald, because Centex has reaped us a 39 percent return since we fake bought it in December.

Still, we're down in all but one of our other five stocks, Devon Energy Corp. (DVN), and its gains have diminished considerably since we've held it. It finished the week up about 5 percent from where we bought it.

Brian

Chart-reading goes mainstream

2008-01-28T03:59:00.000-08:00

I remember poking around the stocks and financial advice section of a bookstore a while back and picking up a hefty tome on "technical analysis."

Inside were pages and pages of squiggly lined patterns matched up with esoteric descriptions like "Doji," "hanging man," "spinning top" and "cup with handle." The last one in particular conjured up the image of reading tea leaves or sud patterns on the inside of an empty Guinness glass.

Obviously, some wacky Tarot card approach to predicting whether stocks would go up or down, I thought with a discounting chuckle before returning the book to its shelf.

But maybe that assessment was too harsh. Technical analysis, or chart-reading, has been getting more attention lately on mainstream business shows and in financial publications. CNBC's "Squawk Box" and "Fast Money" both feature chart analysis segments on a regular basis. A good portion of local trader James "RevShark" DePorre's recent book "Invest Like a Shark" (a great read) is devoted to chart analysis. Indeed, a closer look at chart-reading showed me that the idea wasn't all that far-fetched.

The basic idea is to observe patterns of buying and selling, along with the volume — the amount of shares trading hands — accompanying that activity. A stock whose chart shows upward momentum with a lot of volume behind it might be worth considering.

Just realize, there are many caveats to this premise that can't be summed up here. And just because a stock is moving up on high volume doesn't guarantee it won't begin to tank tomorrow. Most suggest using charts in conjunction with other research, such as examining a company's fundamentals and seeing how well the sector to which it belongs (tech, financials, consumer goods, etc.) is doing overall.

If you want to explore technical analysis further, you should check out Dan Fitzpatrick's "3 stocks I saw on TV," a streaming video segment regularly featured on TheStreet.com that examines recent price movements of individual stocks and predictions about their future performance. BigCharts.com
is a free-use site that's a good place to test your chart theories.

That's entertainment
Rick Santelli, who regularly reports for CNBC from the floor of the Chicago Mercantile Exchange, recently blasted on-air "Mad Money" host Jim Cramer's alleged bullishness leading up to the downturn we're now in. There's a comical video montage of the exchange making the rounds on YouTube.com. If you haven't seen it, you should check it out.

Mock Portfolio performance
It's all red this week, except one underdog that keeps popping up to head the pack. Battered home-builder Centex Corp. (CTX) is the only one in positive territory for us this week in our theoretical portfolio of six stocks. It has gained about 26 percent since we fake bought it in December.

But what do you want when we're 2,000 points down from the Dow's high of 14,200 in October and rest of the indexes have been in free fall? Tech darling Apple (AAPL) closed below $130 in after-hours trading Friday, making for a 70-point drop in that stock in less than a month. All of this is interesting to watch — from the sidelines.

Content on the sidelines

2008-01-21T20:30:00.000-08:00

I'm out.

That's right. I sold it all (not that there was that much to sell).

There's been too much volatility and too much bad news lately, so I've decided to join the rest of the bears in the cave until all of this blows over.

Hey, call me a wimp. But when Jim Cramer, the guy whose sole job is to be a cheerleader for stock-picking, the one who says, "there's always a bull market somewhere!", declares we're in a bear market recession as he did last Tuesday on TheStreet.com, I had to think it might be time to get to a safe place.

To be sure, it wasn't just the "Mad Money" guy's opinion that swayed me though. It was also the front-page Wall Street Journal story Wednesday that began, "The market's message: The worst isn't over."

It was the litany of write-downs from huge financial firms like Citibank (C) and Merrill Lynch (MER) that seem to keep coming.

It was the gut-wrenching, whip-lashing peaks and troughs — with far more troughs.

It was seeing that Teflon beauty Apple (AAPL) notch a new high of 200 bucks a share the day after Christmas, then fall about 40 points within the span of three weeks.

If you want to try to guess a bottom among all this mess, be my guest. Me, I'm too chicken and am very content watching from the sidelines.

There are all kinds of theories out there at the time of this writing. Some think the nation's administration will step in with a fix. Others are waiting on the Fed to again cut rates at the end of this month.

Quite possibly either or both of those things may have happened by the time you're reading this (I'm writing this on Wednesday. They're actually letting me escape for a short vacation, you see). I, however, am not believing anything, at least for the time being.

Does that mean I've given up on stocks? Heck no.

As soon as I see some inkling of stability, I'll be right back in there. I see this as a good time to do homework and seek out some good stocks that show promise for a sunnier day. It's also a good time to analyze trades to see where I could have done better.

Of course, there's always the chance that I'll be kicking myself this week. I envision headlines heralding stability in the subprime markets. Or maybe Apple's Steve Jobs will say he forgot to mention at the Macworld convention last week. The company, he'll say, is unveiling a new iPod that can teleport people, doing away with the need for combustion engines.

But if recent weeks are indication, I have a feeling it will be the same old bad news and daily ups and downs. Meanwhile, I'll be comfy in my cave.

Who you calling short?

2008-01-14T04:39:00.000-08:00

With the maniacal see-saw ride of late in the markets, and the notion of recession firmly ingrained in the consciousness of many investors, it’s no surprise that more downside in many stocks is expected (even though Daddy Fed is expected to soon be forthcoming with another rate cut).

Friday was another punch in the gut with the Dow dropping 246 points and the NASDAQ falling nearly 2 percent on continued recession talk and more mortgage write-down news. With all this downward movement, shorting, or betting against stocks rising, might be the way to go.

But shorting usually involves getting a margin account approved from a broker. Then you have to borrow stock from the broker, sell it, and hopefully buy it back later at a lower price, reaping the difference. That’s all fine, unless the stock continues to go up. Then, you can be on the hook for far more than your original investment.

If you’re anything like me, that’s a bit intimidating.

But a recent article in BusinessWeek discussed the increasing popularity of shorting, or inverse, exchange-traded funds. "With the inverse funds, investors can effectively short a whole basket of stocks," according to the magazine. "Unlike the setup with a traditional short sale, if you bet wrong, you can’t lose more than your original investment."

ProShares offers a variety of shorting ETFs, among them, ProShares Ultrashort Financials (SKF) and ProShares Ultrashort Real Estate (SRS), which have had a return over the past six months of 59.9 percent and 52.3 percent, respectively. The BusinessWeek article warns that inverse ETFs are not buy-and-hold investments, but rely on current market conditions for success. They should be monitored closely.

Mock portfolio performance

With the way the market's been since we ushered in 2008, it's little surprise that our theoretical portfolio of six stocks is getting knocked around a bit. All told, we're down about $1,500, or 4.5 percent, on a total fake investment of $33,699. Boeing (BA) has lost us $1,200 since we pretend bought it in December. Wachovia (WB) took us down for 15 percent, or a $649 loss on a $4,300 initial investment of 100 shares.

Around Christmas, Centex Corp. (CTX) in the out-of-favor home-building sector was actually leading the pack at about 20 percent to the upside, but it has now sunk back into the red, albeit only by about 40 bucks. The only two stocks we finished the week in positive territory on were oil-and-gas explorer Devon Energy (DVN) — up about $430 or 5 percent on an $8,200 investment — and Florida Power & Light (FPL) — up about 2 percent or $150 on a $6,900 investment of 100 shares. Fasten your seat belts. It's probably going to stay bumpy for awhile.

How are you faring? I'd really like to hear from investors out there. How's it going? Are you nervous about the current market? I want to hear from you.

Brian

Response to reader question

2008-01-08T08:50:00.000-08:00

A poster asked that I explain my comment about exchange-traded funds possibly suffering loss of participation by sheer dilution.

That is a theory I’ve actually read a couple of different places regarding the increasing number of ETFs cropping up each day. The Wall Street Journal recently put their numbers at more than 600.

It is not my theory and I actually own an ETF and am currently considering another.

But I have heard a pundit or two suggest that with the sheer number of ETFs now on the market, some of the funds may have a hard time accumulating assets (ie., new investors), which would cause their share prices to languish.

The dilution argument would be akin to a person betting on Brand X coffee when there were 600 other coffees out there to choose from. What would make a person choose one brand of coffee over another?

Of course, there are plenty of others who suggest the market is always right and will sort out the best and worst. Investors, they reason, will act accordingly and be rewarded for it.

Brian

Keep vigilant in unraveling market

2008-01-07T06:58:00.000-08:00

Happy, um, New Year?

From where I sit, the champagne's flat and my party blower has a hole in it.

Oil hit $100 a barrel and national unemployment climbed to 5 percent, making for two 200-point-plus drops in the Dow during the first week of 2008. That puts the Dow more than 1,300 points below its all-time record high close of 14,164 posted almost three months ago on Oct. 9.

Some forecasters suggest this is only the beginning of what will be a pretty rocky year.

"Since 1949, the unemployment rate has never risen by this magnitude without the economy being in recession," Bear Stearns Chief U.S. Economist John Ryding told MarketWatch.

Worry is definitely setting in for me and my little portfolio. During the past week I took some profit in a couple of winners while I still had it to take — selling part of my positions in Apple (AAPL) and mining equipment maker Bucyrus International (BUCY). I also cut loose a couple of laggards — Precision Castparts (PCP), which supplies the aviation and automotive industry, and trash-hauler Waste Management (WMI).

For the time being, I'm following the advice of Investor's Business Daily, which is to make no new buys during the current downtrend and monitor stocks in your portfolio closely for signs of weakness.

Information overload

No one ever said the stock market was stress-free. But the thing I find most stressful lately is the preponderance of conflicting information regarding investments. One story says investing in emerging markets like China, India and Brazil is still the way to go in 2008.

Another says those investments have already rallied and are set to cool off. Exchange-traded funds are the way to diversify and spread risk for healthy returns, says one article. But another says there are already too many of these ETFs (their ranks doubled in number in 2007 to 601, according to the Wall Street Journal) out there and many will suffer loss of participation from sheer dilution.

Time to buy banks and homebuilders — the bottom is in, says one pundit. Homebuilders and banks still have far to fall says another. Recession. No recession. Inflation? Stagflation?

For me, all of this leads to analysis paralysis and a headache to boot. One might take heed of multi-billionaire investor Warren Buffet's advice: Tune out the noise found on Wall Street. Invest in well-managed companies and look to the long-term. Of course, that's easy to say when you're already in your 70s and have billions of dollars. A ding or two here or there isn't going to hurt that much.

For me I think I'll work to keep what I've got, capturing gains when I've got them and not letting losses grow too great.

Mock portfolio performance

Speaking of not letting losses grow too great, I would have already kicked Wachovia (WB) to the curb if it were real money instead of funny money we were playing with in the theoretical portfolio (published in the Monday Business section of the Bradenton Herald.

Wachovia leads the pack of six stocks in losses — 17.5 percent, or roughly $750 to the downside on an initial investment of $4,300 for 100 shares since we pretended to buy it in December. Homebuilder Centex (CTX) was leading the pack in percentage gain but lost a lot of ground this week, paring about $4 per share since last Monday.

For now, the leading spot belongs to Devon Energy (DVN), which is still up about 9 percent since we bought it.

Be careful out there.

Brian

Time to play defense?

2008-01-03T11:29:00.000-08:00

As the recession predictions continue to pour in and banks and financial institutions keep piling on to their already mountainous heap of bad debt, it’s becoming clearer that 2008 is going to be a rough ride, at least initially.

There are plenty of fund managers keeping an ample amount of their assets in stocks but some are saying it may be time to get defensive.

Yes, it may be time to pull out the "Cokes, smokes and soaps," as CNBC’s Jim Cramer calls them. Stocks like Coca-Cola (KO), Pepsico (PEP), Altria Group (MO, the former Philip Morris) and Procter & Gamble (PG) have traditionally been reasonable safe places to be when the economy slows. The rationale here is that people still drink sodas, smoke and bathe (hopefully, anyway) in bad times or good.

That’s no guarantee, however, those stocks won’t get hit, too. It’s still important to keep an eye on them and cut losses early if things continue heading south.

Discipline is equally important, whether buying or selling. And it can actually be harder to muster discipline when selling, says local financial planner Tom Kubik of Kubik Financial Services in Bradenton.

"The hardest thing to do is send the dog to the farm," Kubik says, of a lagging stock in one's portfolio. "Most people will sell off a winning stock long before they'll sell a losing stock."

It can be frustrating to admit you're wrong on a stock pick, particularly after you've spent a lot of time studying its fundamentals and business approach, Kubik says.

"I tell people, 'What do you want to do?" Kubik says. "Do you want to keep putting Band-aids on it and continue to watch it go down or do you want to seal the wound and move on?"

I can attest that sealing the wound is the better choice. As an exercise to prove my theory, I'll usually stick a stock I sold at a loss (particularly if I questioned the decision afterward) in a theoretical portfolio to see if my discipline paid off. More often than not, the stock will continue to go down or at the very least, stagnate.

Remember, you can always buy back a stock if its direction changes. But you can't undo losses once a stock tanks.

Laziness rewarded

Don't feel like constantly monitoring things and worrying about when to buy and sell? Paul Farrell, a regular contributor to MarketWatch, espouses so-called "Lazy Portfolios," which are combinations of no-load index funds like those offered by Vanguard.

The simplest of these, the "Margaritaville Portfolio," consists of holding and regularly contributing to only three funds: Vanguard Inflation-protected securities (VIPSX), Vanguard Total Stock Market Index Fund (VTSMX) and Vanguard Total International Stock Index Fund (VGTSX). That simple approach, Farrell claims, produced a 5-year annualized rate of return of 10.18 percent — better than the 6.19 percent logged by the S&P 500.

That's hard logic to argue with. I guess I'm just too much of a glutton for punishment to follow it, however.

Brian

No time for mourning when money's at stake

2007-12-31T04:40:00.000-08:00

It was chilling to watch the footage of the chaos that followed the assassination of former Pakistan Prime Minister Benazir Bhutto.

But more disturbing was the running commentary on CNBC's "Squawk Box" as the footage aired. It went something like, "So gold's still a safe haven, isn't it? What about the euro? How will that be affected?"

Now I understand that it's a financial show, and money is the peg for most stories. But it still made me feel a little queasy to see the tragic loss of an important life - a person seen by many as the key to future stability in that region - reduced to a footnote pertaining to the performance of investors' portfolios.

Yes, that discussion has to take place at some point, but not while the body is still warm. It's definitely a strange world we live in.

Writedowns? You ain't seen nothing yet

A poster to my blog recently asked if I had any thoughts on the large foreign stakes being taken in Merrill Lynch (MER) and Morgan Stanley (MS), among other financial institutions.

I actually blogged a week ago about banks trying to shore up their subprime-torn capital with foreign investments (under the heading "Hey China, looking for a date?"), but there's now more news on that front.

Friday's Wall Street Journal reported that analysts expect Merrill, Morgan and Citigroup (C) to announce more bad debt for this quarter - Citigroup, to the tune of $19 billion. Analysts suspect such dismal data can only lead to more large stakes being taken in U.S. financial institutions by China, Abu Dhabi, Singapore and other foreign investors.

For 2008: Champagne or ginger ale?

It seems a coin toss anymore. Bullish and bearish pundits both abound. All have their solid theses for why they're right about what the coming year will bring.

Usually it's a good indication to see where the big players stand with their stock and cash allocations. That, however, also seems a mixed bag at the moment.

The most recent BusinessWeek talked to several pros about where they had their assets parked. Their answers, and predictions for the coming year, varied.

But one response was particularly interesting, given who it was. Elaine Garzarelli, president of Garzarelli Capital, said she had 100 percent of her assets bullishly allocated to stocks.

Garzarelli is widely known as the fund manager who predicted the Black Monday crash of 1987.

Treading water

Not much movement in our mock portfolio (published in the Monday Business section of the Bradenton Herald each week) over the past week. That could be seen as a good thing, given the ongoing geopolitical strife and poor housing and employment data that was reported during the week.

Wachovia (WB), one of our six stocks, shaved about a buck per share for the week. We'll have to see what the new year brings.

Brian.

Lukewarm 2007 and ideas for next year

2007-12-26T08:47:00.000-08:00

Good Greif

There’s been a decent amount of buzz lately about Delaware, Ohio-based Greif Inc. Greif (GEF) produces steel, plastic, fiber and corrugated containers, as well as protective packaging for various industries. Its customers include those in the agricultural, automotive, furniture and beverage industries, among others.

Greif, which operates in 48 countries, posted record net sales of $3.3 billion at the end of its fiscal year Oct. 31 — a 26 percent increase over last year. Analysts expect comparable growth in the future.

The stock, which currently trades in the $66 range and has a price-to-earnings ratio of 25, pays a 28-cent quarterly dividend to boot. Investor’s Business Daily gives Greif an overall rating of 94 out of a possible 99, based on its technical and fundamental qualities.

Water, water, everywhere

Another investment gaining attention is that precious commodity of the future: water. With the ongoing severe drought in Georgia (where the governor recently prayed for rain) and municipalities and governments fighting over water supplies, the acquisition and transporting of good old H2O is seen as a burgeoning industry for the future.

Rather than making a pure play on an individual water stock like water resources driller Layne Christensen Co. (LAYN) or desalination plant company Consolidated Water Co. (CWCO), however, some recommend exchange-traded funds devoted to this niche. Claymore S&P Global Water ETF (CGW) or PowerShares Global Water Portfolio ETF (PIO) are just two that maintain a basket of stocks of companies involved in water supply and exploration, much as a mutual fund would do.

Some of these ETFs had fairly recent debuts. As with all investments, swim at your own risk.

Bulls vs. Bears: Who won this year?

The "Ahead of the Tape" column in this morning’s Wall Street Journal took an interesting look at who came out ahead this year: bulls or bears.

Neither could claim a huge victory, Scott Patterson writes. Mutual funds that bet on the bear by shorting stocks were down 5.5 percent for the year, according to the article. The average return of 6,818 mutual funds tracked by Morningstar was 6 percent — not a whole lot better than most CDs.

Despite all the credit mess and geopolitical uncertainties, however, the Dow and NASDAQ are up 8.7 percent and 12 percent, respectively.

Brian

Some possible picks for the new year

2007-12-24T04:57:00.000-08:00

Santa brought good cheer to Wall Street on Friday. It was the second day in a row that all three major indexes ended in a positive close. We'll have to see what today brings. Hopefully it's not lumps of coal. It will be an abbreviated trading day, with markets closing at 1 p.m.

Fortune announces picks

Fortune magazine just came out with its Investor’s Guide 2008 listing 44 stocks and mutual funds to consider for the coming year. Among the picks are Florida real estate company St. Joe (JOE), Dick’s Sporting Goods (DKS) and video game maker Electronic Arts (ERTS).

On the foreign front are fertilizer producer Potash Corp. of Saskatchewan (POT), Russian phone service provider Mobile Telesystems (MBT) and Bank of Ireland (IRE). Last year, Fortune’s 10 domestic picks beat the S&P 500 by an average of 14 percent. Oil driller Diamond Offshore (DO) produced the highest return — 56.5 percent. Insurer AIG (AIG) did the worst, posting an 18.4 percent loss.

Of Fortune’s six foreign picks for 2007, only one, Credit Suisse (CS) posted a negative return — shedding 6.5 percent. International miner Rio Tinto (RTP) blew the lid off with a 117.9 percent return. The lowest positive return was posted by BP (BP) — an increase of 12.6 percent.

Hey China, looking for a date?

CNBC On-Air Editor Charlie Gasparino said Friday that U.S. financial institutions like Citigroup (C), Merrill Lynch (MER) and UBS (UBS) were essentially "prostituting themselves" by accepting infusions of large sums of capital from foreign investors like China, Abu Dhabi and Singapore to get through the subprime mess. "All these financial institutions are in such bad shape now that they essentially have to sell themselves to the Arabs, the Chinese (etc.)," Gasparino said.

Get used to it, suggested the Wall Street Journal a day earlier. Under the headline "Great Wall Street of China" the paper discussed the rise of the sovereign-wealth fund — essentially, government-owned investment vehicles like China Investment Corp., which just sank $5 billion in Morgan Stanley (MS). A market strategist told the paper the SWF for sovereign-wealth fund should instead stand for "salvaging withering franchises."

The Journal also raised the question of whether SWFs could use their investments for political ends.

Mock portfolio performance

Homebuilder Centex Corp. (CTX) still leads the pack percentage-wise in gains for our mock portfolio, tacking on 20 percent, or just over $400 on a $2,086 investment of 100 shares, since we pretended to buy it at the beginning of the month. It closed up about a buck for the week from last Friday's close. I personally tried to guess a bottom on this one a while back and got burned, but it seems to be performing better now. I'd still be careful though. Homebuilders have a tall ditch to climb out of. Wachovia (WB) still trails our group of six stocks, shedding nearly 9 percent on a $4,300 investment of 100 shares.

Have a good Christmas

Brian

Dear Confused... Oh wait, that's me

2007-12-19T08:55:00.000-08:00

I’d hate to be the person writing headlines for MarketWatch.com lately. “We need a 'bulls in charge' headline. Oops, wait a minute, we need a 'bears' headline. Wait a second, put that bulls headline back up there.”

Indeed, it’s been a yo-yo ride and I’m sure I’m not alone in feeling a little queasy. Since my mood is inextricably linked with what the market’s doing, I’ve been a bit of a manic depressive lately.

Several times in the last couple of weeks, I’ve wanted to say to heck with it all and just let it ride in a CD. After the huge sell-off Monday of Wall Street’s darlings — Baidu (BIDU), First Solar (FSLR), Apple (AAPL, I own) — many people didn’t know where to turn.

Even CNBC’s “Mad Money” host Jim Cramer, traditionally a momentum-play kind of guy interested in quick profits in fast-rising stocks, suddenly got all Motley Fool on us, talking about value stocks for five-year time horizons.

Huh?

Some of the beaten-downs regained their lost ground Tuesday, helped along in part by a better-than expected fourth-quarter earnings report from Goldman Sachs (GS).

Ironically, Goldman ended up being a victim of its own good news — it dropped more than 3 percent, or about $7, by the end of the day after cautioning that near-term future earnings might not be as strong.

Then this morning, Morgan Stanley comes out with more write-down news, bringing total fourth-quarter charge-offs to $10 billion. And like Citi, Morgan Stanley also disclosed a substantial investment of $5 billion from a foreign investor – this one from China Investment Corp.

Where’s a poor individual investor (ie., you and me) to go?

Well, maybe we can take a cue from Bob Rodriquez, CEO of First Pacific Advisors, with more than $10 billion in assets under management. In the latest edition of Fortune, Rodriquez put the chance of recession at “north of 70 percent.”

Where is he parking nearly half of his assets?

Cash.

-- Brian

America on the cheap and hot solar stocks

2007-12-16T22:21:00.000-08:00

Just when you think you've seen every spin on the state of the economy, a new one surfaces. This one was a report by MarketWatch that suggests the weak dollar and soaring oil prices will actually bring manufacturers from abroad to our shores to decrease capital expansion and transportation costs.

And it's apparently happening. Alstom (FR:ALO), a French manufacturer of high-speed trains and turbines, has announced plans for a $200 million plant in Chattanooga, Tenn., according to MarketWatch. The company's chief executive officer said higher euro valuations were bad for margins and the U.S. was attractive for building the new facility.

Other foreign companies, including Samsung Electronics (SSNG.Y) and German steel-maker Thyssenkrupp AG (DE: 750000) have similar plans in the works or discussion, according to the report.

Sunburn on the horizon?

Anyone who's kept an eye on those solar stocks has probably noticed how crazily inflated their prices have become. In fact, some have compared their rise to the dot.com fad in 2000. Then again, green is gold these days and large corporations like General Electric (GE) and Florida Power and Light (FPL) have committed to significant solar programs.

But as David Gaffen notes on his Wall Street Journal blog Marketbeat, skepticism has grown over a stock like First Solar (FSLR, I own), which has risen 732 percent this year. It trades at a steep 181 times earnings. But compared to another group member, Sunpower Corp. (SPWR), which trades at a mind-boggling 640 times earnings, that might seem like a bargain.

Still, the sector continues to shine on. For how long, who knows. Gaffen quotes an analyst who says of solar stocks' run: "Eventually enthusiasm will bubble over and offer a warning sign but I don't think we are there yet."

Recent buys and sells

It continues to be nothing short of craziness with the litany of economic reports that have been lumped on the market this week and the resultant roller-coaster ride for traders and investors. I continue to stay in the game, albeit with a good deal of anxiety.

Here's a couple I've bought in the past several weeks: Bucyrus International (BUCY), maker of mining equipment, and Vimpel Communications (VIP), a Russian telecom provider. Here's a couple I've sold: Target (TGT) and Bank of America (BAC).

Mock portfolio performance

It was a week that saw the Dow close down 178 points. The NASDAQ dropped 32.75 on Friday and the S&P 500 sank 20.46 points. Homebuilder Centex Corp. (CTX) was the only one of the six stocks in our mock portfolio that ended in positive territory Friday — up 8 cents for the day, and 14.6 percent since we've held it.

Devon Energy Corp. (DVN) has brought the second-best return since initiating our portfolio Dec. 3. We have a gain in it of 7 percent or about $592 on an $8,281 investment. Wachovia Corp. (WB) has performed the worst, losing 9.23 percent or about $400 on a $4,300 investment.

Good luck this week.

Brian Neill