No Moss

Last Thursday Was the Bottom - It's Time to Get Back in

Bank of America is a stock I've owned at various times over the last two years. I have generally made money with the stock, the last time buying 200 at 39.xx and 100 at 19, then selling out at 36, and I was lucky to get out at the one-time return to the 30s. I recently bought again at $12.90, hoping that the dividend will hold at 1.28. This is a stock which got out of subprime in 2002 or so. Ken Lewis is a very good retail banker, but he may have overreached with Countrywide and Merrill Lynch, but at $12.90, or even under $15, the stock is just too cheap to pass up. This stock will never be in the teens again, in my opinion. Buy now and keep it forever, it's just too big to fail. It has a huge investment in China Construction Bank, and that will be an incredible investment when normalcy returns to Chinese stock prices.

What little I know about water transport stocks scares me, and that is volatile prices, spot markets, and ship inventories. Good dividends when times are good, though.

Oil? Well, anybody that doesn't believe oil will come back is crazy. The bottom we are seeing here has delayed people solving the problem of oil dependency, so we're no better off than we were before. Demand is down now, but will return when things perk up a bit, and any sign of shortage lures investors and hedgers into the market. I mean, a barrel could be $100 in March--it's just that volatile.

McDonald's: Solid Dividend Yield, Above Average Growth

I think of MCD as a REIT with a bonus (the franchise fee), and then as a fast food company. I wonder if they could afford larger dividends based on funds from operations (FFO).

The price of gas will hurt them more than most because of those prime freeway locations, and it throws some cold water on the Sinopec deal (building a Mickey D at thousands of gas stations in China). I believe we can expect some normalization of oil prices, but the days of freewheelin' across America are over. They'll have to concentrate more on "local" business.

Anyway, good company. Helped now by rapid expansion abroad and by the weak dollar, but steadily increasing in value based on its prime real estate as a bonus.

Preparing for the Fall

We've been in a bear market for a long time. For instance, the NASDAQ is about 1/2 of what it was at its peak in 2000. Many stocks like Microsoft, Johnson & Johnson, and General Electric are selling for about what they were in 1998.

What we're looking at right now is a consumer under pressure, unable to spend at the rate he was before. Yesterday's performance was a perfect storm of rising oil prices and unemployment. Rising oil prices affect the ability of some businesses to survive, much less operate at a profit.

Still, gas is cheap in the US, about half of what it is in Europe. Homes are cheap compared to Europe, and getting cheaper. Unemployment is 5.5%, but that's a rate that most European countries would love to have.

I think that the financial news channels tend to drive the markets faster in either direction, but I'm not sure they have any long-lasting effect. America has incredibly strong brands that will be dominant for generations, and these brands are doing well in developing markets. I'm a skittish bull these days, doing OK on my energy-related stocks, getting slaughtered on BAC, and breaking about even on my REITs.

There is a lot of liquidity around waiting for a signal to join the party. We'll see what happens to that money when the market makes a move up.