rockymtnway

Battling the Doomsday Machine

While your GDP analysis and argument is well thought out, I think it fails to take into account the growth in corporate, government and consumer debt that has been used to leverage the growth of the last thirty years. Ultimately, I think there is a great deal of deleveraging that needs to take place and we've only just begun the process. While I'd love to believe that we're at the bottom, I think you're like the bargain hunters of 1931 buying in when the Dow was at 180. It took them until 1945 to break even and until 1954 before they actually doubled their money.

How Wall Street can ignore the failure of Citigroup and rally is beyond me. There's a serious desire to believe this is the 1980's or even the 1970's and not the 1930's.

Good luck to you. Personally, I'm long on wheat and rice... in my pantry!

Corporate Insiders in Buying Frenzy

It's interesting that finding silver and gold in coin denominations is getting very difficult and people don't know where else to stick their money in the face of a looming recession. While they may be foolish given the current deflationary trend, if the dollar begins to lose value due to their growing debt, things could turn around quickly.

I wonder to what extent the lack of insider buying is simply because of a fear of the markets right now rather than sound financial strategy. Seeing ABX trading in the low $20s recently with gold still over $725/ounce is a clear sign that things are out of whack.

Countdown of Manipulated Gold Price Running Out

Gold is an excellent hedge against inflation, but right now it appears we're in for a period of stagnation or even deflation (housing prices dropping, oil prices dropping, food prices likely to begin going down soon). As a result, gold isn't likely to do much, imho, as there's not a dramatic increase in unsupported money supply.

While I'm pretty old school and believe that every portfolio should contain some dividend yielding gold stocks, I wouldn't go crazy and overweight in the stuff. While the current prices are attractive because of the improving dividend yields, as demand drops because of the slowing global economy, profits will suffer. Remember that a company like Barrick still spends $450/oz. to mine it and they're hedged with futures contracts to protect that margin. A lot of their sales are at prices fixed last year. That puts a cap on their potential profits and losses. Unless gold stays over $800 in the long run, profits will stay fixed or decline.

Sustainable Energy After the Correction

I'm fairly heavily weighted in the sector and I'm no long optimistic. The biggest spenders on solar in the last few yearrs have been Germany and Spain; two countries with very serious economic problems right now. I just can't see the governments continuing to put expensive incentive plans on the table in the 2010 budgets.

Also, as the markets have crashed, so has gone the money to buy that new set of panels. The same pool of money that goes toward early retirement goes to invest in lowering my utility bill.

While I was hopeful just a year ago, we are in a completely different landscape and I think you can't go based on current or projected earnings when looking beyond existing contracts for future revenue.

Who Will Bail Out the U.S. Government?

The government can always print more money, which is exactly what they are doing. What difference does it make if you threaten to raise interest rates to slow down inflation if you just print more money? This, my friends, is a farewell to the American dollar. If you think the last price spike in oil was bad, wait until those dollars are worth 20-50% less. I can't figure out why Wall Street futures are so high right now, minutes before the opening bell. Delusional thinking if one thinks destroying the dollar will save the markets in the long run.

Nowhere to Turn: This Bear's Different

Gold might hold some value if inflation was the issue, but the problem is that now, with oil prices dropping below $100/bbl, the key factor in recent price increases is gone. So gold is losing its luster as a hedge in this market, that's why Barrick took a 5% hit yesterday and has been falling steadily for the last month.

Steel depends on manufacturing be business as usual, which it's not. Without demand, steel has been historically fickle. While their costs are down with the price of coal falling recently, if there's no demand, there's no profits.

This is uncharted territory, my friends. I think the only thing to do right now is hold onto what you've got if you're already at a loss and assume you won't be right-side up for 3-4 years. This is no time to be bargain hunting and it's pointless to sell at a loss unless you made the mistake of buying into WaMu last week. If you are lucky, your portfolio contains at least a few dividend yielding stocks and that will at least give your portfolio some growth if you're set up to DRIP. Frankly, I think my money is safer in dividend yeilding stocks right now than in a bank.

Solar Breaks Oil Price Dependence

Of course there's a coorelation between various energy sources; it's a free market system. ...or at least it's supposed to be. Solar has the benefit of subsidies in many nations in the world. Without those subsidies, just how many solar manufacturers would be showing any profit this year? Probably none. While there is good coming out of the current influx of money into solar in the form of increased research money and production capacities, solar will only show it has a future when it can demonstrate the ability to out-profit oil, gas, nuclear and wind. That's not happening right now and for many solar companies, it may never happen.

Until CSIQ and the other solar giants start producing 2-5% dividends on top of multi-billion dollar profits like XOM & COP, their price is based on nothing more than hope, dreams and subsidies.

Cal-Maine Foods: Eggs in One Basket

I recently got out of CALM at about the same price I got in. The reason? I started tracking the price of eggs at my local supermarket. Not very scientific, but when the local price for a dozen large eggs has gone from $1.83 on 5/12/08 to 10 dozen for $10 ($1/dozen) 6/18/08, it was clear the trend was way to strong and in the absolute wrong direction. I expect next quarter's profits to be a big disappointment given the expectations and the following quarter to be dismal. Once it tanks and drops back into the $6-7 range that it's historically had before 2007, I'll get back in. I believe in the fundimentals of the company, just not the bubble it's sitting on right now.

Does Buy-and-Hold Work on Major Blue Chips?

The dividend discussion is critical here since many of these companies work hard to raise dividends every year. A $1,000 investment in something like GE isn't just going to give you 4% for the next 10 years. That dividend is going to grow, year after year and after 10 years the yield is likely to be the equivelent of 10% based on your original investment. When you compound that with dividend re-investment, you're looking at safe investments that hold the potential of building a rather nice nest egg without a lot of trading fees or volitility. While I understand the appeal of picking nothing but fast moving winners, it's a riskier game with as many winners as losers. I believe a well diversified portfolio should contain both blue chips that are buy and hold investments (with dividend reinvestment, of course) and small caps with explosive growth. However, if you're not the type of have the patience and discipline to watch the small caps, then for gawd's sake, stay away from them.

Dow: An Undervalued 5-Star Market

There's certainly a lot of value in this market right now, but the trick is finding value that doesn't Bear Sterns on you, or sit there doing nothing for the next 12-18 months before things come off the bottom. GE is far more diversified than any of the others and is making strong efforts at conserving and generating cash. The dividend at over 4% is plenty to keep me in for the long haul, even if it sits on the bottom for a year or two. I continue to buy in as the price goes down (I've thought it's been a bargain since $32.5).

While I hold PFE, I also have my concerns for long term growth with their biggest moneymaker, Lipitor, coming off patent in 2010. It think the dividend is safe until then, but at that point, all bets are off. That may hold the current price where it is until then.

As for financials, I'm looking at companies that have been smarter than the average bear and managed to avoid the mass of sub-primes like JP Morgan Chase. They're one of the only one's healthy enough to sustain their dividends and continue to pick up bargain acquisitions along the way. Still, I predict stock prices in the financial sector will be flat at best, with a likely downward trend for the next 6-12 months as we figure out just how slow this economy can go without stalling.

Imperial Sugar: Insurance Coverage Adequate to Rebuild

Mark, While I would like to blame the dismal second quarter earnings on Imperial's tragedy, profits and share prices have been falling for over a year preceding the event. I share your optimism that new machinery and retooling will pay off in the long run, I have little doubt that they have a rough road ahead. Given the number of unknowns, I don't see a bottom around $13.50-14/share as unreasonable. It's hard for analysts to provide valuable predictions prior to the resumption of production, so the improving forecasts may be a little ahead of their time. While IPSU remains on my value radar, at this point I want to feel comfortable that there's a firm bottom to the reconstruction. In it's absense, there's ample opportunity for competitors to step in and take a piece of the pie.