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SockMarket (40.17)

June 2010

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19

My Dog is Smarter than Your Politician

June 30, 2010 – Comments (13)

Here are some priceless quotes from prominent politicians. Going oldest to youngest:  [more]

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19

Why Price/Book is Overrated As a Valuation Mechanism

June 28, 2010 – Comments (25)

It seems to come up in almost every stock analysis. I can't count the number of times I have heard: “this is a book value bargain, buy now!”. Frankly I think that is a bunch of baloney. To illustrate why I am going to call in Warren Buffett. The following is a paraphrase of something he once wrote:  [more]

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24

A Thank You to CAPS--And My Result

June 23, 2010 – Comments (19)

It is rare that you can find a community where you can pose a personal question and get one personal answer. To get over 20 is tremendous. When you find a place where people can answer a query like this one and get the kind of answers I did you know that you have a good community. Although we occasionally have the political squabbles and finger pointing for all intents and purposes this is an awesome community.  [more]

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27

A Little Help From Those With More Life Experience

June 18, 2010 – Comments (39) | RELATED TICKERS: ELP , H

It seems to me that fun professions don't pay well, unless your life's calling is to be a CPA (no offence meant to any CPA's out there). There are many causes, and I will not go into them, however this appears to be the case, especially for what I consider fun.  [more]

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11

A Hypothetical Question--Retirement

June 14, 2010 – Comments (27) | RELATED TICKERS: IRE , T , RE

I am not looking at retiring yet, I figure I should at leat go to college first :-), but I have been asked to discuss investing while in retirement with a fellow. Currently he is not diversified at all and I was wondering what people thought a reasonable retirement portfolio ought to look like, assuming this guy needs a safe 6% a year.   [more]

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8

Another Utilitarian Post - EXC & FPL What’s Happening and What You can Expect

June 11, 2010 – Comments (2) | RELATED TICKERS: EXC , FPL.DL2

EXC & FPL were the darling utilities for every investor over most of the last decade, returning 200% and 100% from 2003-2008. While most of the industry had to pay 5% or so to attract investors these two managed to escape with paying only 3% or so, and in some quarters, less. Recently though these two have fallen out of favor, going from $90 to $38 and $65 to $50, respectively.

Why? Well there have been plenty of theories but mine is as follows: during their boom times the energy sector was going gangbusters. Every energy product was going through the roof. People believed that energy prices would continue upward and that utilities nationwide would be able to raise rates. As a result any company that was able to use a source of fuel that did not rise in price would be able to expand their margins and profit quite nicely. So they bought Exelon and Florida P&L (or as they are calling themselves now: NextEra).

People knew that EXC generated most of their power (92%) from nuclear and so would benefit from that rate hike and people likewise assumed that FPL generated most of their power from wind (which is a misconception created by the company, only about 40% of their power comes from wind) and could do well as well.

Then when energy prices collapsed people began to re-think the idea that energy would continue to go up and questioned the practice of buying a utility for growth (which does seem pretty stupid) and sold their stake. Even when oil rebounded with the market, there remained significant pessimism in natural gas and coal (which drive the utility market).

Now EXC and FPL are coming down to earth, so to speak, and are starting to be valued as most other utilities are, based a bit on tangible book value, a lot on the dividend, and some on earnings. In this drop they will likely be priced a bit lower than their fair value, before a small rebound, and will offer a buying opportunity. Although I have only skimmed the annuals, I will read them more in depth over the coming days, a quick estimate of potential future pricing:

Ticker        Est. Low          Good Buy          Fair Value
EXC            $37                   $37-39                 $45
FPL             $39                   $39-41                 $41* (will probably trade around $47-53)

*The reason I give FPL a lower fair value than most would think is that they have managed to bill themselves as the ‘Wind Utility of the Future’. That is largely a bunch of BS as only 40% of their power comes from wind, but I guess that is what you get for hiring the best marketing man available. I would want to see a yield around 5% on them, hence the fair value I gave them, however there is significant cache to wind so I would be surprised if it does not have a premium priced into the stock for quite a while.

EXC seems to have found some nice support right around $38 (this is just based on watching the stock, I don’t to any TA), so I believe they will eventually bottom around there, although it looked like they had the same thing going at about $42, where I bought, so I would not be surprised to see another drop below this. Similarly FPL has remained quite a bit stronger than I would have expected, so they may not drop quite as far as I have predicted.

That said I believe both are decent long term holdings, although I would prefer FPL, if it gets low enough to buy. EXC will face some issues with rising uranium costs in 2013 when the USSR uranium runs out and will face still more because the US is starting to build more nuclear plants now. FPL, on the other hand, has a nice diversification of power sources and with 44% of generation not affected by the price of input fuels. Further they seem to have very strong management, which is something that is hard to put a price tag on, but can be huge in the long run.

And now to steal a disclosure from one of my favorite CAPS authors: this is JMO and worth exactly what I am charging for it!
  [more]

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12

Why I am Becoming a Golden Bear

June 10, 2010 – Comments (12) | RELATED TICKERS: GOLD

I have been watching gold's astronomical rise from the sidelines (for the most part, I have made several trades on GG, but who's counting, me aside :-) ) and for the better part of the last year I have been wondering whether gold really deserves its lofty price. The more I have looked, the less enamoured I have become. The reasons for the rise have been the typical gold bug argument, so disproving those arguments ought to be reason enough to become aGolden Bear.

 

The Typical Gold Bug Arguments

1. Gold is an inflation hedge

2. It is a safe haven from restless markets

3. It does well in deflationary periods

4. It is a medium of exchange

 

The Issue With the Current Price (#1)

As I pointed out with these graphs gold is at highs that have rarely been seen when you adjust it for CPI, M2 and M3 (I didn't check M1).   [more]

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7

Spammers: The Latest Attack & Stopping Them

June 10, 2010 – Comments (8)

Instead of the usual pump 'n dump you have just witnessed the very rare: scam 'n short. Consider yourself unlucky to have seeen such and event.  [more]

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38

Political Statements & Generalizations On CAPS

June 08, 2010 – Comments (19)

Every so often I see a post on CAPS that is a shameless critisism of one political party's followers, or one that calls out all people who believe in one politically charged statement/bill (see the healthcare "debate") as stupid. I am personally disgusted by this and wish it would stop.   [more]

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3

Gold Adjusted for Inflation (In Graphs)

June 07, 2010 – Comments (3)

Gold is a store of value, more or less (more is produced annually, so there is some inflation but it is not substantial), so some charts showing it's price vs. different inflation (or money supply) measures:   [more]

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