May 18, 2009 –
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RELATED TICKERS: XOM
, BYD
, NSC
Looking into a number of different things that will have an effect on the economy and market this year and going on into the future, the one that catchs my eye everytime is petroleu. A talk with my father shortly before he died, centered on keeping an eye on petroluem and it's prices both sort-term and long-term. As a petroleum engineer, he had always keeped his finger on that market after retiring and expressed a bit of caution. [more]
May 16, 2009 –
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RELATED TICKERS: MON
, NSC
, KFT
Well, the first half of this year is almost over and what a ride it has been. Screaming, shouting, crying, whining, laughing and a lot of whimpering coming from investors has been the trend during this time period. I must admit I found myself doing a little of the same thing until I heard myself. Aside from being disgusted with myself about doing that and not realizing that, while things are bad, it was not the end of the world. Luckily, by the end of January, I decided it was time to do some data mining to find potentials.
Primarily, I was looking in areas where people were NOT doing the above things and looking for companies that were well entrenched and had little to no need for debt, or those few that were smart enough to get financing early before banks completely shutdown lending. Then the epiphany came, which showed great companies with share prices devastated by people covering margin, debt, derivatives, etc.
Why, oh why, this is the land of milk and honey and “there’s gold in them thar hills”. I’m not talking about the junior miners, although I did buy into some of that too. Hum, so many choices and not enough money… What to choose and when to jump was the question. As always, when sentiment is lowest, the voices loudest, and the fingers point left and right, that was the time because too many people were not looking at the details within the market. Yep, their just looking at the indexes, so let’s jump now.
Bear in mind, that jumping in occurred at different points because each sector and even some sub-sectors have their own individual recovery points where their rally starts. Everyone talks about 9 March as the start of the recovery, some started before that and some after that. The question everyone asks is it too late to jump in and the answer is nope. There are still lots of opportunities out there.
My core holdings are dividend producers and I like having companies paying me to own their stocks. Granted on average, I’ve lost half my income from those sources but most of them will recover back to their original amounts over time. One ones that didn’t cut dividends held their prices during the down turn and others that did paid the price for it. But I’m ok with that because I have the time and I bought more of those that paid the price, like Pfizer, to increase my earnings from them in the future.
Plus, I’ve been buying into companies like Visa, GE, Berkshire Hathaway and NovaGold at or very close to their lows. Lucky timing and that is all on that but it felt right because people spent more time blaming others rather than paying attention to the market. Other buys were related to cost averaging down the prices on stocks that I got into too early at the end of last year. The cost averaging was done to improve my position within very good companies or in preparation for my exit strategies for those companies that are no longer good yet somewhat viable.
Some would argue that I might be throwing good money after bad on those companies but I don’t think so base on the fact that money will be pouring back into them once people decide that equities are a good bet again. The research on two of the three companies shows that they are well founded and will survive the current market.
The third is a little less certain but has a considerable, if questionable, backing of the US Government. Basically, the cost average price is low enough that I can exit cheaply and not lose any money. Plus, their prices were cheap enough that the dividends from other stocks will make up the loss, if any, in a quarter. Besides, a loss will be helpful for tax purposes this year anyway. So, I still win even if I lose.
Now, for the future I have to consider a balance between cheap prices in great companies and what is the Fed going to do about the inflation potential. So, I’m going to look into inflation resistant stocks like ExxonMobile, Monsanto, Kraft and Norfork Southern. I expect Gas prices to climb and return to the $150/barrel price. It’s going to happen and there is no question of it. Industry is going to demand it as the economy recovers and people spend more for travel. The second side to that coin is the rail traffic is going to picking up as well and increase as gas/diesel prices climb higher than a lot of trucking firms can absorb in the future. Monsanto and Kraft are a natural because people have to eat good times or bad. Plus, they all pay dividends that survived the current crisis which makes me think that they have pretty goods moats for survival.
[more]
April 29, 2009 –
For the last six months, as everyone has, I've been reading about the usual Doom and Gloom about the Economy. Like everyone else I got caught up in the usual cycle of OMG and what are these idiots doing. A lot of reading was done and a lot of thinking about what to do was done as well. [more]
April 27, 2009 –
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RELATED TICKERS: C
, BAC
, MS
Having read the outline outline (PDF) from the stress test and understanding the basic statistical methods being employed, I have a concern about the data collection date that was employed.
Credit utilization was one of the require items used in evaluating Credit Cards. While some institutions decreased credit lines prior to the February 2009 Data acquisition point, a larger number of credit line reductions have occurred afterward. This difference will skew the credit card data in a false positive effect than what currently exists today. In truth, credit card utilization currently has a more negative impact now.
How much more of an impact I can not say because I don't have the actual numbers. But this must be taken into consideration for it's impact on the whole.
Secondly, FICO made a major change, in 2008, in its scoring engine that is used by banks today. Knowing how the Scoring engine works at the detail level and knowing that many banks have not switch to the new scoring engine as this time, my concern here is that they are mixing apples and oranges if they do not correct for the differences between the engine types.
The key factor that I do not know is what scorecards are used by what banks and there in lies the problem. How an individual is score depends on the quality of the cardholders at each institution. So, each scorecard a bank uses is different than any other scorecard at all the rest of the institutions. Plus there are four different types of scorecards used within the scoring engine based on whether a cardholder is an excellent one ranging to the bottom of the poorest scoring cardholder.
So, FICO either had to supply the Fed another engine to create a correction factor for all of the credit card score information or apples are being compared to oranges and tangerines and pomegranates and etc.
Plus, FICO Loan scoring engine is different from the Credit card scoring engine as well because of the type of loan notes and how each individual pays those loans. It is a know fact the people in delinquent condition will favor certain credit instruments over other when paying loans or credit cards. Basically, loans will receive a more favorable payoff and reduced delinquency rate because people like sleeping in house over cars.
Lastly, no mention was made in the document stating whether FICO provided any kind of score adjustment engine or not to bring all of the scores into a baseline common alignment.
Those are my thoughts and concerns. [more]
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